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Texas Construction Law Blog For Subcontractors & Suppliers

Adding Another Target: Personal Guaranties

Posted in Collection

In general, a personal guaranty makes an individual or individuals liable for an entity’s debts or obligations.  A personal guaranty which guarantees a general contractor’s obligations to pay a subcontractor is rarely given, but it is common for the principal(s) of a subcontractor with unestablished credit to personally guarantee the debts and obligations of the subcontractor to a supplier in exchange for purchasing or renting materials on credit.

Personal guaranties are understandably unpopular with customers.  The most opportune time to get a personal guaranty is when a customer first applies for credit.  It is common to include a personal guaranty in or attach it to the credit application.

A personal guaranty is nice to have, but it is not a substitute for a lien or bond claim (liens and bonds offer much more security).  A personal guaranty is merely an additional avenue to collect an obligation.  In other words, it provides an additional target for payment of a debt.  However, a personal guaranty is no better than the individual signing it.  If the guarantor does not have the financial assets to support the guaranteed obligation, the personal guaranty is virtually worthless.

You should make the personal guaranty continuing, absolute and unconditional.  You should contact your attorney to help draft a form of personal guaranty so that you have it at your disposal when the need arises.