The Most Commonly Used Defenses By Personal Guarantors, And The Way To Beat Them

The extension of credit to a business entity can be a risky proposition if you don't take any collateral, as security. In order to protect themselves, most creditors insist on obtaining a personal guaranty from someone at the place of business that has adequate personal assets to cover the debt, in the event that the business entities' account were to become delinquent.

It can be financially devastating for a creditor to go through all of the trouble of obtaining a personal guaranty on a corporate obligation, extending credit based on that guaranty, and later discovering that due to a technicality, the guarantor is able to absolve himself of liability and the creditor is left with a large loss. However, this does not need to occur. With a few precautionary measures, the creditor can protect itself from those defenses and ensure that the personal guarantor remains liable for the debt.

One of the most commonly used defenses by personal guarantors is that their signature was forged and that they had no knowledge of the guaranty and did not authorize the signing of it. This presents a problem for the creditor in two respects.