My lender is asking me to sign a personal guarantee. What do I need to know?

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If you are starting a business, it is not unusual to require a loan to help get your business started. If that is the case, you may be asked by whoever you are getting the loan from to sign a personal guarantee.

What this means is that when you have to repay the lender for the money you were loaned, if the business itself is unable to repay the credit, then you yourself, being either an executive or partner within the business, will take on that responsibility personally.

This had become standard practice, however, if you give a personal guarantee in Alberta you will want to be sure that you understand the risks.

In Alberta, security interests in personal property are governed by the Personal Property Security Act, R.S.A. 2000, c. P-7 (Alberta PPSA), which sets out a thorough system governing the creation, attachment and perfection of security interests in Alberta.

Language matters

First and foremost, when it comes to signing a personal guarantee, you need to understand what exactly you are agreeing to.

In Alberta, personal guarantees are usually negotiable and there is room for discussion when it comes to the terms of an agreement. To successfully negotiate the terms of a guarantee, it is a good idea to determine which ones are most important to you so you can go into the negotiations with knowledge of which terms to protect.

If you are asked to sign a personal guarantee it is also very important you pay attention to the language used by the loan officer. Make sure you understand the level of risk you are agreeing to and all the specific details within the guarantee and how they impact you.

When it comes to negotiations, you should also consider if the guarantee should be limited to a certain amount or expire at a certain date. You may decide to reopen discussions about the terms of your personal guarantee if, for example, your business starts to become more successful and you want to make renegotiate some terms.

Validity of a personal guarantee

In Alberta, a personal guarantee must be executed before a lawyer in order to be valid.

The guarantee must be signed in the presence of a lawyer who has explained the content of the guarantee to the guarantor.

The lawyer will then have to sign a certificate in the prescribed form that they recognize that the guarantor understands the contents of the guarantee. The guarantor will also sign the certificate. Alberta is the only Canadian jurisdiction to have such consumer protection legislation and failure to comply with such legislation results in the guarantee not having any legal effect.

Contact Baker Law Firm Today

Baker Law Firm has worked with many clients to help them to understand what it means in agreeing to sign a personal guarantee. If you have been asked to sign a personal guarantee and are looking for a law firm to walk you through the legality of it all, don’t hesitate to contact Baker Law Firm today. We’re the law firm in Calgary you can trust and are always happy to help.

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