You have finally found the perfect storefront in Silver Lake for your boutique, or you are ready to secure financing to expand your Culver City restaurant. Months of searching, planning, and negotiating have led to this moment. Then, just as you are about to move forward, the landlord or lender slides a document across the table and asks for your personal guarantee. The pressure is immediate and intense. You are told this is “standard,” that everyone signs one, and that pushing back could cost you the deal altogether.
But what often gets lost in that rush is the reality that a personal guarantee can expose far more than just your business; it can put your home, savings, and long-term financial security at risk. Before committing your personal assets to a business obligation, Los Angeles business owners must fully understand what a personal guarantee truly means, the risks involved, and the legal options available to protect themselves before signing.
What a Personal Guarantee Really Means
A personal guarantee destroys the liability protection that forming an LLC or corporation provides. When you sign one, you are promising to personally repay business debts if your company cannot. This means creditors can pursue your home, savings accounts, investment portfolios, and other personal assets to satisfy business obligations.
The financial exposure can be staggering. A five-year commercial lease in Los Angeles easily represents hundreds of thousands or even millions of dollars in total obligations. A business loan might be $500,000 or more. If your business fails, and statistics show most do within five years, then you remain personally liable for these amounts even after closing the business, filing for corporate bankruptcy, or walking away from the venture.
Personal guarantees also typically survive the original obligation. If your landlord sells the property, the new owner can enforce your guarantee. If the lender sells your loan, the buyer inherits your personal promise. These obligations can follow you for years, impacting your ability to get mortgages, car loans, or credit cards.
Common Situations Requiring Personal Guarantees
In Los Angeles, landlords almost universally demand personal guarantees from small business tenants, especially for retail, restaurant, and office spaces. The city’s competitive commercial real estate market gives landlords leverage, and they view personal guarantees as essential protection against tenant defaults. Given LA’s relatively high rents (e.g., easily $5,000 to $50,000 monthly depending on location and size), landlords want assurance beyond a startup company’s limited assets.
Lenders similarly require personal guarantees for most small business loans. Whether you are borrowing from a traditional bank, online lender, or SBA-backed program, expect to guarantee the debt personally unless your business has substantial assets, strong cash flow, or significant operating history. Equipment financing, lines of credit, and term loans typically all require guarantees.
Vendors and suppliers sometimes demand personal guarantees too, particularly when extending significant credit to newer businesses. If you are ordering $50,000 in inventory or materials, suppliers may want your personal commitment before shipping.
How a Los Angeles Business Attorney Can Help
Many business owners assume personal guarantees are non-negotiable. This is not true. An experienced Los Angeles business lawyer can often negotiate meaningful protections that dramatically reduce your risk.
Limited guarantees cap your exposure at a specific dollar amount or time period. Instead of guaranteeing five years of rent, you might guarantee only the first two years, or limit your exposure to $100,000 rather than the full lease value.
Conditional guarantees tie your obligation to specific triggering events, such as guaranteeing only if the business’s cash reserves fall below a certain threshold or if specific financial covenants are breached.
Joint and several vs. several guarantees matter when multiple owners are involved. A “several” guarantee divides the obligation among guarantors, so you are only liable for your percentage rather than the full amount.
Carve-outs can protect specific assets. You might negotiate to exclude your primary residence, retirement accounts, or other essential assets from the guarantee’s reach.
Burn-off provisions reduce your guarantee over time as you demonstrate business viability, perhaps decreasing by 20% annually as you make timely payments.
Release triggers might allow your guarantee to terminate when your business achieves certain financial milestones, such as maintaining specific revenue levels or net worth thresholds for a sustained period.
In sum, do not sign a personal guarantee without legal review. The document may seem like a formality, but it represents potentially life-altering financial exposure.
Have Questions? Speak with a Knowledgeable Los Angeles Business Attorney Before You Sign
Signing a personal guarantee is not a routine formality, it is a serious legal and financial commitment that can follow you for years and impact your personal assets long after a business relationship ends. Before you agree to take on that level of risk, it is critical to have a seasoned Los Angeles business attorney review the terms, explain the real-world consequences, and advocate for protections that align with your long-term goals.
At Hakim Law Group, we work closely with Los Angeles business owners, entrepreneurs, and founders to assess whether a personal guarantee is reasonable under the circumstances and, when possible, negotiate more favorable terms. Our business lawyers routinely help clients limit exposure through caps, carve-outs, burn-off provisions, and other strategic protections that many business owners don’t realize are negotiable. Just as importantly, we make sure you fully understand what you are agreeing to before your personal finances are placed at risk.
Hakim Law Group is a respected corporate and business law firm in Los Angeles, known for helping companies navigate complex legal, contractual, and regulatory matters with clarity and precision. Whether you are entering a new lease, securing financing, or renegotiating an existing obligation, our team brings practical insight and local market experience to every conversation.
If you are being asked to sign a personal guarantee, or want a second opinion before moving forward, don’t sign first and ask questions later. Contact Hakim Law Group today to schedule a confidential consultation. Call (310) 993-2203 or visit www.HakimLawGroup.com to learn how a Los Angeles business attorney can help protect what you’ve worked hard to build.
