Personal Guarantee in Alberta

In Alberta, personal guarantees are a common part of business financing and commercial agreements. Whether you are signing a lease, obtaining a loan, or securing credit, you may be asked to personally guarantee repayment or performance obligations on behalf of your company.

While this may seem like a routine requirement, a personal guarantee carries significant legal and financial risk. This guide from the Business Law team at Libra Law explains what a personal guarantee is, when it is used, and how to protect yourself before signing one.

What Is a Personal Guarantee?

A personal guarantee is a legal promise by an individual to be personally responsible for the debts or obligations of a business. It is most often required when a company applies for financing or enters into a commercial lease.

If the business defaults on its obligations, the guarantor becomes personally liable for repayment. This means that a lender, landlord, or creditor can pursue the guarantor’s personal assets — including savings, vehicles, or real property — to recover losses.

Personal guarantees are often signed by:

• Small business owners or corporate directors
  
• Entrepreneurs seeking bank loans or lines of credit
  
• Tenants signing commercial leases
  
• Shareholders guaranteeing company performance
  

Why Lenders and Landlords Require Guarantees

Lenders and landlords use personal guarantees as a form of risk protection. When a corporation has limited assets or a short operating history, creditors seek additional assurance that debts will be paid.

From their perspective, a guarantee provides an extra layer of security beyond the company’s assets. From your perspective as a guarantor, however, it effectively removes the limited liability protection that incorporation normally provides.

If you are operating a small or newly incorporated business, you may have little negotiating power to avoid a guarantee entirely — but you can take steps to limit your exposure.

Common Types of Personal Guarantees

1. Unlimited Guarantee
   The guarantor is responsible for the full amount of the company’s obligations, including future debts and costs. This is the riskiest form of guarantee.
   
2. Limited Guarantee
   The guarantor’s liability is capped at a specific dollar amount or percentage of the debt. These are more negotiable and common in multi-partner arrangements.
   
3. Continuing Guarantee
   Applies to ongoing obligations, such as revolving credit or renewable lease terms, until revoked in writing or replaced by a new agreement.
   

Before signing, review the terms carefully and clarify whether your guarantee covers only a specific contract or extends to future obligations.

Risks of Signing a Personal Guarantee

When you sign a personal guarantee, you assume personal financial liability that can continue even if your business closes or declares bankruptcy. Key risks include:

• Loss of personal assets if the business defaults
  
• Negative impact on personal credit score
  
• Continued liability after leaving the company, if not released
  
• Complex enforcement actions, including legal proceedings or asset seizure
  

Because guarantees are legally binding, courts in Alberta will generally uphold them unless they were signed under duress, misrepresentation, or without proper understanding.

If you are unsure about the implications, seek advice from a Calgary business lawyer before signing.

How to Limit Your Liability

While it is not always possible to avoid a personal guarantee, you can often negotiate terms to reduce your risk. Consider:

• Setting a clear limit on the dollar amount or duration of the guarantee
  
• Requesting proportional liability if multiple guarantors are involved
  
• Asking for release clauses once the business demonstrates strong financial performance
  
• Avoiding joint and several liability, which allows the creditor to collect the full amount from any guarantor
  

Document all negotiated terms in writing and ensure they are included in the signed agreement.

For business owners with partners or shareholders, a properly drafted shareholder agreement can also clarify financial responsibilities and reduce personal exposure.

When to Seek Legal Advice

Because personal guarantees can create long-term obligations, it is critical to understand the fine print before signing. A lawyer can:

• Review the terms and explain your obligations
  
• Negotiate modifications or limitations
  
• Identify risks not apparent in the initial agreement
  
• Draft corporate structures or contracts that minimize future exposure
  

Working with an experienced business lawyer in Calgary helps ensure that your personal and corporate interests remain protected.

Final Thoughts

A personal guarantee can help your business access financing and build credibility, but it also creates significant personal risk. Understanding what you are agreeing to — and negotiating fair, limited terms — can protect you from unexpected financial consequences.

If you are being asked to sign a personal guarantee or want to review an existing one, talk to a business lawyer at Libra Law. Our team can help you evaluate the agreement, identify risks, and explore safer alternatives for securing your business obligations.

Disclaimer: This article is for general informational purposes only and does not constitute legal advice. To obtain advice specific to your situation, please consult a lawyer or qualified professional.