When you’re building a business, you’ll often be asked to sign a personal guarantee when you apply for finance, lease premises, or set up credit accounts with suppliers.
It can feel like a standard admin step - but a personal guarantee can have serious consequences. In plain terms, you’re agreeing to be personally responsible for your business’ debts if the business can’t pay.
That’s why many founders look for a personal guarantee template to understand what it should say (and what it shouldn’t say). The tricky part is that a template is only a starting point. If you sign a guarantee that’s too broad, you may be taking on more risk than you realise.
Below we’ll break down what a personal guarantee is, when it comes up, what a personal guarantee template in Australia needs to cover, and the common clauses to watch closely before you sign. This article is general information only and isn’t legal advice.
What Is A Personal Guarantee (And Why Do Businesses Ask For One)?
A personal guarantee is a promise made by an individual (often a director, founder, or business owner) to pay a debt if the business doesn’t pay it.
For the other side (a lender, landlord, or supplier), it’s a form of risk management. If your company can’t pay its debts, they may be able to pursue you personally under the guarantee (depending on the wording and how the documents are signed).
Common Situations Where You’ll Be Asked To Sign
- Commercial leases (especially for new businesses with limited trading history)
- Business loans and overdrafts
- Trade credit with suppliers (e.g. you order stock now and pay later)
- Equipment finance and hire arrangements
- Franchise arrangements (sometimes)
If you operate through a company, you might assume your personal assets are protected by “limited liability”. A personal guarantee can cut across that protection, because you’re voluntarily taking personal responsibility for the company’s obligations.
This is why founders should treat a personal guarantee as a significant legal commitment - not just a formality.
Is A Personal Guarantee Template Enough For Australian Small Businesses?
A personal guarantee template can be useful for understanding the typical structure and the clauses you’ll see. It can also help you compare two guarantees (for example, a supplier guarantee vs a lease guarantee).
But a template doesn’t tell you whether:
- the guarantee is appropriate for your specific risk profile
- the liability is too broad (for example, it covers “all money owing at any time”)
- you can negotiate the terms (sometimes you can)
- you’re signing as an individual, or also signing as director (and what that means)
- the guarantee is enforceable and properly executed
In practice, many guarantees are embedded inside other documents - like a credit application, lease, or loan agreement. That means you might not be signing a “standalone personal guarantee” document at all.
If you’re about to sign something important (like a lease or finance deal), it’s usually worth getting the full agreement reviewed, not just pulling a generic template from the internet.
What Should A Personal Guarantee Template Include?
Whether you’re reviewing a guarantee someone has given you, or you’re being asked to sign one, there are some common sections you’ll expect to see in a solid personal guarantee template for Australia.
Here’s what to look for.
1. Parties (Who Is Giving The Guarantee, And Who Benefits?)
A personal guarantee should clearly identify:
- The guarantor (you, as an individual - full legal name and address)
- The creditor/beneficiary (the supplier, landlord, lender, or finance company)
- The primary debtor (your company, partnership, or trading entity)
If these aren’t clear, you can end up with confusion about what you’ve agreed to, or who can enforce it.
2. The Guaranteed Obligations (What Exactly Are You Guaranteeing?)
This is the heart of the document. A guarantee should describe the obligations you’re backing.
Common approaches include:
- Specific debt: e.g. “payment of $50,000 under Loan Agreement dated…”
- All amounts owing: e.g. “all money the debtor owes now or in the future”
- Performance obligations: e.g. not just payment, but also performance of all terms
As a small business owner, this is one of the biggest risk areas. Broad drafting (“all amounts, present and future”) can expose you to liabilities you didn’t anticipate - including liabilities that increase over time as your account limit grows.
3. Liability Amount (Is There A Cap?)
Some guarantees are uncapped. Others have a maximum amount the guarantor is liable for.
If you’re being asked to sign, consider whether you can negotiate:
- a fixed cap (e.g. $20,000)
- a cap tied to an agreed credit limit
- a cap that excludes certain costs (like enforcement costs)
Even if the other party won’t agree to a cap, understanding whether the guarantee is capped helps you make an informed decision about the risk you’re taking on.
4. Continuing Guarantee (Does It Keep Applying?)
Many personal guarantees are drafted as a continuing guarantee. That means it continues to apply even if the business relationship changes over time.
For example, your supplier might update their terms, increase your credit limit, or provide additional goods and services later. If the guarantee is “continuing”, it may automatically apply to those changes.
This is a key reason why guarantees can become more risky as your business grows.
5. Joint And Several Liability (If More Than One Person Signs)
If multiple founders or directors sign the guarantee, it’s often “joint and several”.
This usually means the creditor can pursue any one guarantor for the full amount - not just a share.
So even if you and a co-founder “agree between yourselves” to split responsibility 50/50, that agreement may not limit the creditor’s rights.
Where there are multiple founders involved, it can be worth clarifying expectations in a Shareholders Agreement so everyone understands how financial risk is managed in the business.
6. Demand And Enforcement (When Can They Come After You?)
A guarantee will usually explain when the creditor can demand payment from the guarantor, and what steps they can take to enforce it.
Depending on the drafting, some guarantees allow the creditor to demand payment from the guarantor once the debtor defaults, and they may not need to try to recover from the business first.
It’s also common for guarantees to include indemnity wording (more on that below), which can make enforcement easier for the creditor.
7. Execution Requirements (How It Must Be Signed)
A personal guarantee should be properly executed. Execution requirements can depend on:
- whether it’s signed by an individual or also by a company
- whether witnesses are required (sometimes they are, sometimes they aren’t)
- whether the agreement allows electronic signing
If a guarantee is included inside a larger agreement, you should also check that the overall agreement has been executed correctly. For example, if your company is signing, the signing block may refer to execution under section 127 of the Corporations Act (which deals with how companies can sign documents).
Key Clauses To Watch In A Personal Guarantee Template
Even if a guarantee “looks standard”, small wording changes can significantly change your exposure. These are some of the clauses founders and small business owners should pay close attention to.
Guarantee vs Indemnity
Many documents are drafted as a “guarantee and indemnity”.
- A guarantee generally supports the debtor’s obligation - it’s linked to the debtor defaulting.
- An indemnity is often drafted as a primary obligation to compensate the creditor for loss, and may be enforceable even if there are issues with the underlying debt (depending on the wording and circumstances).
Indemnities can be broader and more creditor-friendly. This doesn’t automatically mean it’s “bad”, but it does mean you should understand that you may be taking on more than a simple back-up promise.
Interest, Costs And Enforcement Expenses
Guarantees often require you to pay not only the principal debt, but also:
- interest (sometimes default interest)
- legal costs
- debt recovery agent fees
- any other enforcement expenses
If you’re comparing options (for example, two suppliers), these clauses can materially affect your risk exposure.
Changes To The Underlying Agreement Without Notice
Some guarantees allow the creditor to vary the underlying agreement (like credit terms) without notifying the guarantor, while still keeping the guarantee in force.
This is one of those provisions that can surprise founders later - particularly if a small credit account turns into a larger facility over time.
No Set-Off Or Counterclaim
Some guarantees include a clause that limits set-off and counterclaims, which may affect what arguments a guarantor can raise when the creditor is enforcing the guarantee. The practical impact depends on the wording, the underlying contract, and the specific dispute.
This is also why it matters to ensure your customer-facing documents and supplier documents are well drafted from the start - your overall contract ecosystem matters, not just the guarantee itself. Depending on your business model, having clear Terms of Trade can help set expectations around payment terms, disputes, and recovery processes.
Sometimes a personal guarantee (or the agreement it sits inside) includes language about security interests over assets.
In Australia, security interests can be registered on the Personal Property Securities Register (PPSR). If your supplier or lender is taking security, the risk profile shifts - because it’s not only about a personal promise, but also about claims over business assets.
If you’re doing due diligence on a business or on assets you’re buying, a PPSR search can be an important step.
How To Use (Or Review) A Personal Guarantee Template In Practice
If you’re searching for a personal guarantee template, you’re usually in one of two situations:
- You’re being asked to sign a guarantee and you want to understand what you’re agreeing to; or
- You’re extending credit and you want a guarantee from a customer (for example, if you supply goods on account).
Either way, it helps to approach it as a risk and negotiation exercise - not just a document exercise.
If You’re Being Asked To Sign A Guarantee
Before signing, ask yourself:
- Is the guarantee limited to a specific deal, or is it “all amounts owing”?
- Is there a cap? If not, can you negotiate one?
- Does it last forever, or does it end after the agreement ends?
- Are there any clauses allowing the creditor to change the agreement without telling you?
- Are you signing as an individual only, or also signing on behalf of the company?
Sometimes the best risk management move is structural. For example, if you’re leasing premises, you might be balancing personal risk, company structure, and what the lease says. A Commercial Lease Review can help identify where guarantees sit in the deal and what options you have.
If You Want Someone Else To Give Your Business A Guarantee
If you’re the one requesting a personal guarantee (for example, you’re supplying goods/services on credit), a template should still be tailored to:
- how your credit terms work (invoice due dates, credit limits, interest on overdue amounts)
- your enforcement process
- your customer onboarding process (so the guarantee is signed correctly every time)
Also keep in mind: overly aggressive guarantees can create friction in the sales process. For many small businesses, the goal is to balance protection with commercial reality.
Key Takeaways
- A personal guarantee is a serious commitment that can make you personally liable for business debts, even if you trade through a company.
- A personal guarantee template is a helpful starting point, but the risk often depends on the specific clauses and the broader agreement it sits within.
- Key sections to check include the parties, the scope of obligations, whether there is a liability cap, whether it’s a continuing guarantee, and how it can be enforced.
- Pay close attention to “guarantee and indemnity” wording, enforcement costs, variations without notice, and set-off restrictions.
- If a guarantee is linked to a larger commercial deal (like a lease or finance), reviewing the full agreement is usually more useful than focusing on the guarantee alone.
If you’d like help reviewing or drafting a personal guarantee (or the agreement it’s attached to), you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
