Signing a personal
guarantee?

By Jonathan Kleiman, Barrister & Solicitor · Published June 2026

Most business owners I meet incorporated for one big reason: to keep their personal lives separate from their business risk. The company can owe money, the company can be sued, and — as a general rule — the owner\'s home and savings stay out of it. That is limited liability, and it is the whole point of the corporate shield.

Then comes the day a landlord, a bank, or a supplier slides a document across the table and says, "We just need you to sign personally." That single line — a personal guarantee — quietly undoes the protection you incorporated to get. If the business cannot pay, the creditor can come straight after you. I have seen owners discover, years later, that they had pledged their house to a five-year lease they barely remember signing.

None of this means you should never sign a guarantee — sometimes it is the only way to get the lease or the financing you need, and it can be a perfectly reasonable trade. But it should be a decision you make with your eyes open, not a formality you initial on your way out the door. Below I walk through what a personal guarantee actually does, the places they hide, what happens if the business defaults, and — most importantly — the practical ways to limit your exposure before you ever sign.

What a personal guarantee actually does

A personal guarantee is a promise you make, as an individual, to be personally responsible for a business\'s debt or obligation if the business does not pay it. It is almost always signed by the owner, a director, or another principal of the company. In plain terms: the company is the borrower or tenant, and you are the backstop.

The reason it matters so much is what it does to your limited liability. When you incorporate, business debts generally belong to the company, not to you. A personal guarantee deliberately bypasses that. By signing, you step out from behind the corporate shield and put your own name on the obligation. If the business defaults, the creditor does not have to be satisfied with whatever the company has — it can pursue your personal assets: your savings, your investments, and in many cases your home.

That is the part owners underestimate. People tell me, "But I incorporated, so I\'m protected." You are — everywhere you have not signed a guarantee. A guarantee carves out a single creditor and tells them, in writing, that the shield does not apply to them. It is one of the few documents that can erase the main benefit of incorporating in a single signature, which is exactly why I treat every guarantee request as a real decision rather than paperwork. If you are still in the early days after setting up your company, my guide on what happens after you incorporate in Ontario puts the liability shield — and its limits — in context.

Where personal guarantees hide

If guarantees were always handed to you as a clearly labelled, standalone page, they would be easier to deal with. The problem is that they are frequently tucked inside the main agreement, and they turn up in more situations than most owners expect. Here are the usual places.

Commercial leases

This is the big one, and the one that catches the most owners. A landlord leasing space to a newer company often wants a human being standing behind the rent. They get it through a personal guarantee or, very commonly in Ontario, a landlord indemnity — a closely related promise where you agree to indemnify the landlord for the tenant\'s obligations. The exposure can be enormous, because a commercial lease is a multi-year financial commitment. Guarantee a five-year lease at $6,000 a month and you have, in effect, personally backed well over $300,000. I cover the broader document in detail in my commercial lease review checklist for Ontario, and the guarantee clause is one of the first things a commercial lease lawyer looks for.

Bank loans and lines of credit

When a bank lends to a company without much of a track record or hard assets, it almost always wants the owner to guarantee the loan or operating line of credit. From the bank\'s side this is routine. From yours, it means a business loan is also a personal one. If the company cannot service the debt, the bank can call on your guarantee and collect from you directly.

Supplier and trade credit accounts

This is the sneaky one. When you open a credit account with a supplier — net-30 terms, a fuel card, a building-materials account — the application form you sign often contains a personal guarantee in the fine print. Owners sign these in seconds, treating them like a formality, and only later realize they personally guaranteed every future purchase the company ever makes on that account.

Equipment financing and leases

Financing a vehicle, machinery, or equipment through a lender or leasing company frequently comes with a personal guarantee, especially for a young business. The logic is the same as everywhere else: the financier wants a second pocket to reach into if the company stops paying.

Landlord indemnities

Worth flagging on its own because the wording can be even broader than a classic guarantee. An indemnity can make you responsible for the landlord\'s losses in situations a plain guarantee might not reach. If your lease uses an indemnity rather than (or in addition to) a guarantee, read it especially carefully — it is not just a cosmetic difference in label.

Why lenders and landlords want them

It helps to understand the other side\'s thinking, because it tells you where you have room to push back. A creditor extending money or space to a corporation is taking a risk: if the company fails, there may be nothing left to collect from. A personal guarantee solves that problem by giving them a second person — usually one with a house and savings — to collect from.

That is why guarantees are demanded most heavily from newer companies with no operating history, no significant assets, and no credit record. The less the company can stand on its own, the harder a landlord or lender leans on the owner to personally back it. The flip side is useful to remember: as your company builds a track record and a balance sheet, your leverage to negotiate the guarantee down — or out — tends to grow.

What happens if the business defaults

Here is the scenario the guarantee exists for. The business misses payments. Maybe it is struggling, maybe it has closed, maybe it has gone bankrupt. The creditor turns to the guarantee and looks to you.

The hard truth most owners do not realize is that a personal guarantee survives the failure of the business. The guarantee is your promise, separate from the company\'s. So when the corporation closes its doors — or even when the corporation itself becomes bankrupt — your guarantee does not disappear. The creditor can still come after you personally, because collecting from you when the company cannot pay is the entire reason they asked for it.

That can mean a demand letter, then a lawsuit against you as an individual, and ultimately enforcement against your personal assets. A guarantee on a defaulted obligation is, functionally, a personal debt you owe directly — and it can be pursued the way any other personal debt can. If you are on the receiving end of a demand under a guarantee, that is a moment to get advice quickly, because how you respond early can shape what happens next. My overview of what breach of contract means in Ontario explains how these disputes typically unfold once a creditor decides to enforce.

How to limit your exposure

This is the part I most want owners to take away, because guarantees are far more negotiable than people assume. A landlord or lender hands you a maximal version of the document — open-ended, all-encompassing, no exits — because that is their opening position, not the only version they will accept. Here are the levers I reach for.

Cap the dollar amount

The single most powerful change is to cap the guarantee at a fixed dollar figure. An uncapped guarantee exposes you to whatever the company eventually owes, which on a lease or a revolving line of credit can grow far beyond what you imagined. A cap turns an open-ended risk into a known, bounded one. Even if you cannot get rid of the guarantee, getting a number on it changes everything.

Time-limit it or negotiate a "burn-off"

Ask for the guarantee to end after a set period, or to "burn off" once the company has performed well for a stretch of time — say, after two years of paying rent on time, the guarantee falls away. The logic is fair: a guarantee exists to cover the risky early period before the company proves itself, so once it has proven itself, the guarantee has done its job.

The "good guy" guarantee on a lease

On a commercial lease, ask for a "good guy" guarantee. Instead of being personally liable for the entire remaining term, your exposure ends once you do the honourable thing — give the landlord proper written notice, vacate by the agreed date, hand back the premises in good order, and stay current on rent up to that point. It rewards an honest exit and protects the landlord against the real fear (a tenant who simply vanishes), while sparing you years of rent on space you no longer use. It is one of the most useful tools available on a lease guarantee.

Limit it to your proportionate share

If you own the business with others, push to limit your guarantee to your share of the obligation rather than the whole thing. There is no principled reason you should personally back 100% of a debt when you own 40% of the company — and limiting your guarantee to your proportion is a reasonable ask.

Watch the joint-and-several trap among co-owners

This deserves special attention. Many multi-owner guarantees are "joint and several," which means the creditor can pursue any one of you for the entire amount — not just your share. If your co-owner cannot pay or has disappeared, you can be left covering the whole debt and then chasing your partner for their portion. The protection here is an indemnity agreement between co-owners: a side agreement in which you each promise to contribute your proportionate share, so if one of you gets stuck paying the creditor in full, you have a clear claim back against the others. It does not change your exposure to the creditor, but it sorts out the fairness between you and your partners.

Negotiate it out entirely

Sometimes the right move is simply to ask for no guarantee at all — particularly if your company has a solid track record, real assets, or a strong financial position. The worst answer is no, and you may be surprised how often a landlord or lender will accept a larger deposit, a shorter term, or other security in exchange for dropping the personal guarantee. You will never get an exit you do not ask for.

The fine print to watch

Beyond the big-picture limits, a handful of specific terms turn an ordinary guarantee into a much more dangerous one. These are usually buried in the main agreement, in dense language, which is exactly why they slip past people. Read for them.

• "Continuing" or "all present and future obligations" guarantees. A continuing guarantee does not cover just the one debt in front of you — it covers everything the company owes that creditor now and into the future. On a supplier account, that can mean you are guaranteeing every purchase the company ever makes, indefinitely. This is the difference between backing a specific loan and signing a blank cheque.
• Waivers of defences. Many guarantees include language where you give up defences you would otherwise have — for example, agreeing the creditor can change the terms of the deal, extend more credit, or release other security without affecting your liability. These waivers strip away protections, so the presence of a long waiver clause is a flag.
• "On demand" features. A demand guarantee lets the creditor call the full amount immediately, without much notice, once there is a default. That removes any breathing room you might have assumed you had.

None of these are necessarily deal-breakers, but each one expands your exposure, and you should know they are there before you sign — not discover them when a creditor is enforcing. If you see them stacked together with no dollar cap and no time limit, that is a maximally aggressive guarantee, and that is precisely when negotiation matters most. The same care applies to the underlying agreements themselves; my notes on service agreements for Ontario small businesses make the same point about reading before signing.

Independent legal advice

For any guarantee that matters, get it reviewed before you sign — ideally by a contract lawyer who can tell you in plain terms what you are agreeing to, where the open-ended exposure sits, and which clauses are worth pushing back on. A short review up front is far cheaper than untangling a guarantee under pressure once a creditor is at the door.

Independent legal advice matters even more in one specific situation: when a spouse is asked to guarantee jointly, or to put the family home on the line. The personal stakes there are higher, and the creditor often wants the spouse to have received independent advice precisely so the guarantee is harder to challenge later. If your partner is being asked to sign, they should get their own advice, separate from yours. It protects everyone, including the relationship.

Common mistakes I see

The same errors come up again and again, and almost all of them happen at the signing table, before anything has gone wrong.

Not realizing they signed one at all. Because guarantees hide inside leases and credit applications, owners regularly sign them without registering what they did. The first time they truly understand the guarantee is when a creditor enforces it.

Treating it as a formality. "Everyone signs these" is true and beside the point. Routine does not mean harmless. A standard-form guarantee can still be open-ended, continuing, and uncapped.

Assuming the company closing ends it. Owners wind down a failing business expecting the guarantee to die with it. It does not. The guarantee is your promise, and it outlives the company.

Ignoring the joint-and-several problem. Co-owners sign together without an indemnity agreement between them, and then one of them is left holding the entire debt when the other cannot pay.

Not negotiating. The most common mistake of all is signing the creditor\'s first draft as if it were fixed. It almost never is. Whether you are dealing with a landlord, a lender, or a supplier, the time to shape a guarantee is before the signature, and a business lawyer earns their keep right there.

Key takeaways

• A guarantee bypasses your limited liability. It is a personal promise that lets a creditor reach your own assets — savings and often your home — if the business does not pay, which is the very protection you incorporated to get.
• They hide in the fine print. Commercial leases, bank loans and lines of credit, supplier and trade credit accounts, equipment financing, and landlord indemnities all routinely contain them, often buried in the main agreement.
• They survive the business. Closing the company, or even the corporation\'s bankruptcy, does not erase your guarantee — the creditor can still come after you personally.
• You can usually limit your exposure. Cap the dollar amount, time-limit it or negotiate a burn-off, use a "good guy" guarantee on a lease, limit it to your share, and watch the joint-and-several trap with co-owners.
• Read it and get advice before signing. Watch for continuing/all-obligations language, waivers of defences, and on-demand features, and get independent legal advice — especially where a spouse is asked to sign.

Frequently asked questions

What is a personal guarantee?

A personal guarantee is a promise you sign as an individual to be personally responsible for a business's debt or obligation if the business does not pay. It is usually signed by the owner or a director. The whole point of it, from the creditor's perspective, is to reach past your company and get a second person standing behind the debt. If the business defaults, the creditor can pursue you directly — and that can mean your personal savings, and sometimes your home. It is a contract, and a serious one, so it deserves a careful read before you sign.

Doesn't incorporating protect me from this?

Incorporating gives you limited liability, which generally keeps business debts inside the company rather than reaching your personal assets. That is exactly why many owners incorporate. But a personal guarantee deliberately bypasses that protection. When you sign one, you are voluntarily agreeing to be on the hook personally for that specific obligation, regardless of the corporate shield. So the corporation still protects you everywhere you have not signed a guarantee — but a guarantee punches a hole through the shield for that one creditor. That is why I treat every guarantee request as a serious decision, not a formality.

Where do personal guarantees show up?

More places than most owners expect, and often in the fine print. The common ones are commercial leases (as a personal guarantee or a landlord indemnity), bank loans and lines of credit, supplier and trade credit accounts, and equipment financing. Landlords and lenders ask for them most often from newer companies that have no track record or assets to lend against. The trap is that they are frequently buried inside the main agreement rather than presented as a separate document, so you can sign one without realizing the guarantee was in there at all.

Can I negotiate or limit a personal guarantee?

Often, yes — guarantees are more negotiable than people assume. The most useful levers are: capping the guarantee at a fixed dollar amount so your exposure is not open-ended; time-limiting it or adding a "burn-off" that ends it after a period of good performance; on a lease, asking for a "good guy" guarantee; and limiting your guarantee to your proportionate share of the business. You will not always win every point, but you almost never get a better deal than the one you negotiate before signing. Once it is signed, you have very little leverage.

What is a "good guy" guarantee?

A "good guy" guarantee is a limited form of lease guarantee. Instead of being on the hook for the entire remaining term, your personal exposure ends once you do the right thing — typically, give the landlord proper written notice, vacate by an agreed date, hand back the premises in good condition, and pay rent up to that point. It rewards an honest exit. The idea is that you guarantee you will not just abandon the space and leave the landlord chasing you for years of rent. It can dramatically reduce your downside on a lease, but the exact terms matter, so the wording needs a careful read.

Am I still liable if the business goes bankrupt or closes?

Generally, yes — and this surprises people. A personal guarantee is a separate promise from you, not from the company, so the failure of the business does not erase it. If the corporation closes its doors or even becomes bankrupt, the creditor can still come after you personally on the guarantee. That is the entire reason creditors ask for one: it gives them someone to collect from when the business cannot pay. Closing the company is not an exit from a guarantee. If you are facing this, get advice early, because there may still be options on the personal side.

Can I be on the hook for my business partner's share?

You can, and this is one of the most painful traps. Many guarantees are "joint and several," which means the creditor can pursue any one guarantor for the entire amount — not just your share. So if you and a partner both guarantee a $200,000 loan and your partner disappears or has no money, the creditor can come after you for the full $200,000 and leave you to chase your partner for their half. One way to manage this is an indemnity agreement between co-owners, agreeing to contribute proportionately, so at least you have a claim back against your partner.

Does a personal guarantee have to be in writing?

As a practical matter, yes. A guarantee is a contract, and to be enforceable it generally needs to be in writing and signed by the guarantor. A creditor relying on a vague verbal assurance that you would "stand behind" a debt will usually have a hard time enforcing it. But do not take comfort in that — in the real world, the guarantees that bite are the written ones you signed, often without reading them closely. The signature is what matters, so the time to scrutinize a guarantee is before the pen touches paper, not after.

What should I look for before signing?

Read the whole document, including the parts buried in the main agreement. Watch for a "continuing" or "all present and future obligations" guarantee, which covers far more than the one debt in front of you. Watch for waivers of defences, which strip away protections you would otherwise have. Watch for "on demand" features that let the creditor call the full amount immediately. And look for the absence of any limit — no dollar cap, no time limit, no good-guy exit. If you see those features, that is exactly when you want to negotiate, and exactly when a lawyer's read pays for itself.

Should I get a lawyer to review it?

For anything meaningful, yes — and ideally before you sign, not after. A short review can tell you what you are actually agreeing to, where the open-ended exposure is, and which terms are worth pushing back on. It is far cheaper than discovering the scope of a guarantee when a creditor is enforcing it. Independent legal advice matters even more where a spouse is being asked to guarantee jointly, because the personal stakes — and the family assets — are higher. I would rather spend an hour reviewing a guarantee with you up front than untangle it under pressure later.

Final thoughts

A personal guarantee is not something to fear automatically — it is something to understand. Plenty of good deals require one, and signing a sensibly limited guarantee to secure a lease or financing your business genuinely needs can be the right call. The danger is signing an open-ended one without realizing what it does, then learning the hard way that the corporate shield you relied on had a hole in it all along.

So before you sign, do three things: read the whole document, including the parts woven into the main agreement; identify your worst-case exposure and whether there is any cap or exit; and negotiate the limits that matter — a dollar cap, a burn-off, a good-guy clause, a proportionate share. If you are a co-owner, sort out an indemnity between you and your partners. And if a creditor is already enforcing a guarantee against you, get advice early; how you handle the first steps can matter a great deal, and a debt collection lawyer sees these from both sides.

If a landlord, bank, or supplier has put a guarantee in front of you, have it reviewed before you sign. Call 416-554-1639 or book a free consultation — a short conversation can map out exactly what you would be putting on the line, and what you can do to bring that risk down.