Equipment UCC Filings Best Practices
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A personal guarantee (PG) is an individual’s legal promise to repay credit issued to a business for which they serve as a representative. Then, in the event the business is unable to repay its debt, the individual is personally responsible to pay the debt.
A PG signifies that the lender (obligee) can lay claim to the guarantor’s assets in case of the borrower (obligor) default. It is equivalent to a signed, blank check without a date. The obligee is generally not required to seek payment from the obligor’s assets before going after guarantor’s assets. (see BusinessDictionary)
The lender’s actions are usually based on whose assets are easier to take control of and sell. Once signed, a PG can only be cancelled by the obligee.
PGs are an effective and popular credit tool; however, there are some things to take into consideration.
A properly perfected security interest can reduce risks associated with personal guarantees.
Remember, a personal guarantee is an individual’s promise to repay credit issued to a business for which they serve as a representative. This means, the personal guarantee attaches to the assets of the individual. Whereas, a properly perfected security interest grants you an interest in the assets of the business. (The assets of the business are most likely greater than the assets of the individual.)
Don’t assume a personal guarantee is enough; file a UCC!
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