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When you formed an LLC, you created a legal separation between your personal assets and your business obligations. That separation is real and valuable. It is also easily undone. The instrument that undoes it most reliably is the personal guarantee, and most small business owners have signed at least one without fully understanding what they agreed to.

A personal guarantee is a written promise, made in your individual capacity, to repay a debt or fulfill an obligation if your business cannot. The moment you sign one, your cash, personal investments, and other assets could become available to satisfy that obligation. The LLC’s limited liability protection disappears for that specific debt as completely as if you had never formed the entity.

Personal guarantees are standard in most business lending. The SBA requires an unlimited personal guarantee from every owner with at least a 20% stake in a company applying for an SBA loan. Traditional bank loans, lines of credit, and equipment financing almost always require them. Business credit card applications typically include one in the fine print whether or not they are explicitly labeled as such.

They appear outside lending as well. Commercial landlords routinely require a personal guarantee before signing a lease with a small business, particularly one without an established credit history. Suppliers extending significant credit, net-30 or net-60 terms on a meaningful volume of inventory, sometimes require one in the credit application. In each of these situations, the other party is using your personal financial exposure to compensate for the business’s limited track record or assets.

Not all personal guarantees carry the same exposure. An unlimited guarantee means you are personally responsible for the entire obligation, the full loan balance, all remaining rent, the complete debt, until it is satisfied. This is the default in most lender-drafted documents and the form the SBA typically requires.

A limited guarantee caps your liability in some way: a specific dollar amount, a percentage of the total obligation, a defined time period, or a combination. A guarantee that covers only the first two years of a five-year lease, or that caps your exposure at a fixed dollar figure rather than the full balance, is meaningfully different from an unlimited one. Limited guarantees are available in more situations than most owners realize, but they require asking for them before signing.

The document a lender or landlord presents is almost always drafted in their favor and presented as standard. Much of it is negotiable, particularly when your business has a track record of paying on time.

A dollar cap on exposure is the most common negotiated term, and the most valuable. A time limit that releases the guarantee after a period of on-time payments is another. If multiple owners are signing, specifying that each guarantor is liable only for a pro-rata share rather than jointly and severally liable for the full amount, protects each owner from bearing the entire obligation if a co-owner cannot pay. Carve-outs that exclude specific personal assets, such as a primary residence, from the guarantee are less common but worth requesting in significant transactions.

None of these concessions are guaranteed, and a lender under no pressure to make them may decline. The negotiating position improves with business credit history, consistent revenue, and the availability of alternative lenders, which is one of the more practical reasons to build a strong business credit profile before you need one.

Pull the documents and read the guarantee language specifically. Confirm whether it is limited or unlimited, whether it includes your spouse, whether it survives the sale or dissolution of the business, and what events give the lender the right to accelerate and demand full payment immediately.

Pay particular attention to cross-collateralization language. If your business checking account is held at the same institution that issued the loan or line of credit, the agreement may give the lender the right to freeze or sweep those funds the moment a payment is missed, without separate notice or legal process. Most owners who have signed a personal guarantee do not realize their operating cash is also exposed until it is gone. Our earlier article Business Lines of Credit: What to Watch for Before You Sign covers this risk in detail, including the practical steps owners use to reduce it.

If the guarantee is on an obligation that is performing well, ask whether a release or modification is available after a period of on-time payments. Some agreements include provisions that reduce or eliminate the guarantee automatically when certain conditions are met. Others will negotiate a release if asked.

Going forward, treat any signature line labeled “Guarantor” or “Individual” rather than the name of your business as a personal guarantee, because that is almost certainly what it is.

This article is for general informational purposes only. Personal guarantee terms vary significantly by lender, landlord, jurisdiction, and the specific language of the agreement. Consult a qualified attorney before signing any personal guarantee or taking action based on an existing one.

Question: I have been buying wholesale from the same supplier for eleven years. No written contract, just a handshake understanding that has worked fine until now. Last month they called and said they were terminating the relationship, no explanation, no warning. I was a good customer, always paid on time, never caused problems. What should I do?

Answer: Thank you for a question that deserves a straight answer, and here it is: probably not much, but that doesn’t mean you are out of options.

Without a written agreement, what you had was a relationship, not a contract in the sense that gives either party enforceable rights. Eleven years of good business together establishes trust and history, but it rarely establishes the specific terms that a court needs to find a breach. Oral agreements can be enforceable, but four things generally need to be present: an offer, an acceptance, an exchange of something of value on both sides, and terms specific enough that a court could determine whether they were met. A long-standing buying relationship satisfies the first three easily. The fourth is where most handshake arrangements fall short. If you and your supplier never discussed notice requirements, minimum order obligations, or how long the relationship would last, what you had was, almost certainly, an at-will arrangement, meaning either party could end it at any time for any reason or no reason at all.

That is the honest assessment of where most eleven-year handshake relationships actually stand. Before you decide what to do next, three questions are worth sitting with.

Is the relationship actually over? A direct call to someone senior at the supplier costs nothing and forecloses nothing. Termination decisions made at one level of an organization are sometimes reversed at another, particularly when the customer has eleven years of on-time payments behind them. That conversation is worth having before anything else.

Is it worth pursuing? Even a sympathetic situation is expensive to litigate. Attorney fees and time away from running your business add up quickly. Unless the damages are substantial and the evidence of specific agreed terms is strong, the cost of pursuit typically exceeds what can be recovered.

What does this tell you going forward? The most productive thing you can do right now, alongside whatever else you decide, is find an alternative supplier and put the new relationship in writing from the start. A vendor agreement does not need to be long or complicated, but it does need to exist in writing. Our earlier article How to Review a Vendor Contract Before You Sign walks through exactly what to look for before you sign one.

The Co. Letter is not your attorney. This column is for general informational purposes only. Consult a licensed attorney about your specific situation before taking any legal action.

Have an interesting business question and need a free bit of advice? Send your question to [email protected]. No confidential info, please!