|
|
Personal Guarantees A personal guaranty is a document where a primary owner agrees to guaranty a creditor for extension of credit. A personal guaranty should be signed by the obligor as an individual, not as someone acting in the capacity of an officer of a company. Although governed by state law, a guaranty can be an effective method to assist in the repayment of an obligation. Principals of a corporation are good candidates to sign a personal guaranty because they have a direct financial interest in the corporation's success. By using a personal guaranty, a creditor can gain a personal financial commitment from the principals operating a corporation. It should not be included within the body of the credit application. It must be provided for separately and apart from the application, and it must include a separate signature by the individual guarantor. The guarantee can appear after the application signature line, as a separate section, provided that it is conspicuously labeled as a guarantee and provided there is a separate signature line. The ECOA
(Equal Credit Opportunity Act) will not permit a credit grantor to require
a spouse to sign a personal guaranty if that spouse is not directly involved
with the business credit applicant. Care must be taken to make sure that
there are policies established for dealing with this that there is not
an accidental dark-compliance. The law does permit the requirement for
a spouse to sign a personal guaranty if detailed procedures are followed
to first verify that the participant spouse does not have the financial
credibility or credit wherewithal to support a guaranty. Competent counsel
should be consulted in order to establish the appropriate policies and
procedures for each company as to execution of a personal guaranty. Checklist
for the Personal Guaranty:
|
|
||||||
