Personal Guaranty

Also called personal guarantee, PG

A clause making you personally liable for your business's processing obligations, which survives the closing of the business.

What it is

A personal guaranty makes an individual, usually the owner or an owner above a threshold percentage, personally responsible for the obligations of the business under the merchant agreement. If the business cannot cover chargebacks, fines, fees or losses, the guarantor can be pursued personally. In merchant processing, personal guaranties are close to standard, and are often signed without being noticed, because the signature line for the guaranty may sit on the same page as the business signature and be labeled in small type. The guaranty typically covers all obligations under the agreement, not just a specific dollar amount, and typically survives termination of the agreement and closure of the business. The rationale is the credit structure described elsewhere in this glossary: an acquirer is extending unsecured credit against transactions that can be reversed months later, often to a young entity with few assets. The guaranty is what makes the underwriting work for a small business with a thin balance sheet. Guaranties also appear on the other side of the industry, in ISO and agent agreements and in equipment leases, where a sales agent or a small ISO principal personally guarantees merchant losses or lease obligations.

Why it matters to your business

Before you sign, find out whether you are personally guaranteeing the agreement, and if so, whether the guaranty is capped, what it covers, and whether it ends. Those are three separate questions and the answers are frequently unlimited, everything, and never. If you are closing a business or selling it, do not assume the guaranty disappears with the entity. Guaranties typically survive, and a chargeback arriving after you close can be pursued against you personally. This is education, not legal advice. A personal guaranty is one of the most consequential documents a small business owner signs, and it deserves an attorney's review.

Where it gets contested

The fairness argument turns on scope rather than existence. A guaranty limited to actual merchant losses is a rational allocation of risk. A guaranty covering all obligations perpetually, including fees, fines, early termination charges and attorney fees, with no cap and no sunset, is a different instrument, and it is frequently what is presented. Equipment leasing has produced the most damaging examples. The New York Attorney General sued Northern Leasing Systems in April 2016 over deceptive equipment leases. In June 2020 the court ordered rescission of all leases and vacated default judgments, and in September 2023 awarded over 680 million dollars in restitution against Northern Leasing plus 9.3 million dollars against its attorneys, none of which had been collected as of the Attorney General's posting. Personal guaranties on non-cancellable leases were central to how those obligations were enforced against individuals. What remains unresolved for a small business is negotiating leverage. Most acquirers will not remove a guaranty for a small merchant, but many will discuss capping it, limiting it to loss rather than all obligations, or sunsetting it after a period of clean processing. Almost nobody asks.

How to check it yourself

Search your merchant agreement and any equipment lease for the words guaranty, guarantee, guarantor and personally. Read every sentence around them. If you cannot tell whether you are personally liable, that is the question to put to an attorney before you need the answer.

Receipts

Claims above that are checkable, with where to check them. Published so you do not have to take anyone's word for it.

The New York Attorney General sued Northern Leasing Systems over deceptive equipment leases, with rescission ordered in 2020 and over 680 million dollars in restitution awarded in September 2023
ag.ny.gov ↗
ISO and agent agreements and merchant contract disputes are established payments law practice areas
globallegallawfirm.com ↗