Personal Guarantees on Acquisition Debt: What to Negotiate, What to Accept

PGs are standard in lower middle market credit. Blanket, unlimited, perpetual PGs are not — and shouldn't be.

Every first-time acquirer eventually asks the same question: do I have to personally guarantee the debt? The short answer is almost always yes. The useful answer is what to negotiate inside the guarantee.

What's standard

• Full-recourse PG on SBA 7(a) loans above 20% ownership. Non-negotiable. Program rule.
• Full-recourse PG on commercial bank cash-flow loans. Standard, but with negotiable carve-outs.
• Limited PG on asset-based lines. Often a "bad boy" guarantee only — triggered by fraud, misrepresentation, or misuse of collateral.
• No PG on many private capital structures where collateral is sufficient. Deal-by-deal.

What to negotiate

• Burn-down. PG steps down as principal amortizes. A 5-year burn-down to zero is achievable on a well-underwritten deal.
• Spousal carve-outs. Community property states matter. Don't sign your spouse into the guarantee by default.
• Springing PGs. Guarantee triggers only on defined events (covenant breach, missed payment). Common on ABL and mezz.
• Cap on liability. Not always available, but always worth asking. A capped PG at 50% of loan balance is materially different than unlimited.
• Release on refinance. Automatic release when the loan is refinanced or paid down below a threshold.

What we do

On the private structures we arrange, lenders often lean toward asset coverage over personal guarantees. When a PG is required, we push for burn-down and cap. The goal is a deal structure the borrower can actually operate under for the next five years — not a structure that turns a slow quarter into a personal catastrophe.