A personal guarantee is a promise by the owner to repay a business debt personally if the business does not.
What it undoes
Forming a company separates the owner's assets from the business's debts — see business entity types.
A personal guarantee sets that aside for the guaranteed debt. The lender can pursue the owner directly, and personal assets are reachable.
Why they are almost universal
A small business rarely has enough assets or trading history to secure borrowing on its own. The guarantee is what makes the lending possible at all.
So the realistic question is not usually whether to give one, but what its scope is.
The terms that matter
How much. A guarantee limited to the loan amount is different from an unlimited one.
How long. Some survive the loan being repaid, or extend to future borrowing with the same lender.
Joint and several, where there are several owners. Each guarantor can be pursued for the whole amount rather than their share, so an owner with a quarter of the business can be liable for all of it.
Whether it ends on sale. A guarantee that continues after the business is sold is a real and commonly overlooked exposure.
Where they accumulate
Given one at a time, over years, to different lenders, suppliers and landlords, they are rarely totalled. Adding them up periodically is worth doing, because the sum is the owner's actual exposure.
Getting released
Lenders will sometimes release a guarantee once the business has established its own trading record and business credit. It is rarely offered and is sometimes granted on request.
Before signing
This is a personal legal commitment rather than a business one, and it is worth an attorney reading it — particularly the scope and the duration.