A personal guarantee is a written promise to pay someone else’s debt if they do not pay it themselves. Sign one and you put your own money and property on the line for a loan, a lease, or a supply account that belongs to a business or another person.
Lenders, landlords, and suppliers ask for personal guarantees all the time, especially from owners of newer or smaller companies. The document often looks like boilerplate. It is not. A guarantee can reach past your company and take your savings, your investments, and the equity in your home. This guide explains how personal guarantees work in Ontario, what is actually at risk, how long a lender can chase you, and the practical ways to limit your exposure before you sign.
What a personal guarantee actually is
There are three parties. The borrower, known in law as the principal debtor. The creditor, which is the lender, landlord, or supplier. And you, the guarantor. The borrower owes the money. You promise to step in if the borrower does not pay.
Your promise is a backstop. It sits behind the borrower’s obligation. The creditor’s first claim is against the borrower, but once the borrower defaults, the creditor can turn to you for the balance.
Most personal guarantees exist for one reason. The borrower is a corporation, and a corporation is a separate legal person whose owners are not normally responsible for its debts. That protection is the main reason people incorporate. A personal guarantee quietly removes it for the debt it covers. You went to the trouble of putting a company between you and the world, and the guarantee puts you back in front of it.
Where you are most likely to be asked for one
Bank loans and operating lines almost always come with the owner’s personal guarantee attached.
Commercial leases are the other big one. A landlord renting space to a new corporation will usually want the principal behind the lease, so the rent is covered even if the business folds.
Supplier and trade credit accounts often include a guarantee in the fine print of the credit application. Franchise agreements routinely require the franchisee’s owners to guarantee the franchise obligations. Equipment financing and the financing of a business purchase frequently call for one too, particularly where the seller is carrying part of the price.
In our practice, the guarantee people overlook most often is the one buried in a commercial lease or a supplier credit form. They focus on the rent or the payment terms and skim past the line that makes them personally responsible for everything.
Guarantee or indemnity? The difference that changes everything
This is the distinction most online explainers miss, and it decides how much protection you actually have.
A guarantee is a secondary promise. You are liable only if the borrower defaults, and your liability is tied to theirs. If the underlying debt turns out to be unenforceable or gets discharged, the guarantee usually falls away with it. A guarantee is only ever as strong as the debt it backs.
An indemnity is a primary, standalone promise to cover a loss. It does not depend on anyone else defaulting. An indemnitor can be on the hook even when the borrower’s own obligation cannot be enforced.
Here is the trap. Plenty of documents are titled Guarantee but are written as an indemnity, often with a line that says you are liable as principal debtor or as primary obligor. That single phrase can strip away the protections a true guarantee would give you. We read for this every time. If you are signing something called a guarantee, you want to know whether it really is one.
The three types of personal guarantee
Personal guarantees differ in how much you can be made to pay and how the risk is shared when more than one person signs.
An unlimited guarantee makes you responsible for the whole debt, plus interest, costs, and often the lender’s legal fees. There is no ceiling. A limited guarantee caps your liability, either at a dollar figure or at a share of the total, and it is what you negotiate toward when you cannot avoid signing. A joint and several guarantee comes up when two or more people guarantee the same debt. Each signer can be pursued for the entire amount, not just their share. If your business partner cannot pay, the lender can collect all of it from you and leave you to chase the partner for their part.
| Type | What you can owe | Common use | Your risk |
|---|---|---|---|
| Unlimited guarantee | The full debt with interest, costs, and legal fees, with no cap | Bank loans and commercial leases where the lender wants maximum security | Highest. Your exposure has no ceiling |
| Limited guarantee | A set dollar amount or a fixed share of the debt | Deals with more than one guarantor, or where you negotiate a cap | Contained. You know the most you can lose |
| Joint and several guarantee | The entire debt, recoverable from any one signer | Several owners or partners backing the same loan | High. You can be left paying everyone’s share |
What makes a personal guarantee enforceable in Ontario
To bind you in Ontario, a personal guarantee has to be in writing and signed by you. That requirement comes from the Statute of Frauds, a provincial law that says a promise to answer for the debt or default of another person is not enforceable unless it is written down and signed by the person being held to it. A purely verbal guarantee, the kind agreed over a phone call or a handshake, generally cannot be enforced. The same law confirms that the reason you agreed to guarantee the debt does not have to be spelled out in the document for the guarantee to count.
Ontario does not add a notary step. Some provinces do. In Alberta, an individual’s guarantee has to be acknowledged in front of a notary under that province’s Guarantees Acknowledgment Act, or it does not bind. Ontario has no equivalent rule, so you will not find a mandatory acknowledgment certificate here. What you will find is lenders asking for independent legal advice.
Independent legal advice, often shortened to ILA, means you sit down with your own lawyer, separate from the lender’s, who explains the guarantee and confirms in writing that you understood it and signed freely. Lenders ask for this most often when the guarantor is a spouse or a family member rather than the person running the business. The certificate protects the lender by making it far harder for you to argue later that you were pressured or did not understand what you signed. It protects you too, because you actually find out what you are agreeing to. We provide this advice and the certificate that goes with it.
What is at risk if the lender calls on you
When the borrower defaults and the lender turns to you, the guarantee reaches your personal assets. That can mean the money in your bank and investment accounts, the equity in your home, and other property you own. If the document says so, you are also responsible for interest and the lender’s collection and legal costs, which can add up quickly. A default that lands on you can also damage your personal credit, which affects your ability to borrow for years.
Lenders enforce a guarantee by first making a written demand and then, if you do not pay, suing you. Where they sue depends on the amount. As of October 1, 2025, Ontario’s Small Claims Court handles money claims up to $50,000, so a smaller guarantee can be enforced through that faster and cheaper process. Larger claims go to the Superior Court of Justice. Once a lender has a judgment, it can garnish your wages, freeze accounts, or register against your property to collect.
How long can a lender come after you?
In most cases a lender has two years to sue on a guarantee. Ontario’s Limitations Act, 2002 sets a basic two year deadline that starts when the claim is discovered, meaning when the lender knew or should have known it had a claim against you.
Here is the part that catches people, on both sides. Because a guarantee is tied to the underlying debt, Ontario courts have treated the two year clock as starting when the borrower first defaults, not when the lender finally gets around to demanding payment from the guarantor. A lender who sits on a guarantee for too long can lose the right to enforce it. A guarantor who assumes the clock only starts at the demand letter can be caught out the other way. Which rule applies turns on how your particular guarantee is worded, so this is one to confirm rather than guess.
One thing can restart the clock. If you acknowledge the debt in writing or make a partial payment, the two years generally begins again from that date. Casual emails admitting you owe money have ended more than one limitation defence.
How to limit your exposure before you sign
You usually have more room to negotiate a guarantee than you think, especially before the deal closes and the lender still wants it done. These are the levers we reach for.
- Ask for a cap. Turn an unlimited guarantee into a limited one with a clear dollar ceiling.
- Ask for an exit. Push for a release after a set period of good payment, once the loan drops below a threshold, or when you sell the business.
- Confirm it is a guarantee, not an indemnity. Have the principal debtor and primary obligor language removed so you keep a true guarantee’s protections.
- Narrow what it covers. Tie the guarantee to this specific loan or lease, not to all present and future debts of the business.
- Require notice and a chance to cure. Make the lender tell you about a default and give you time to fix it before coming after you.
- Sort out contribution among multiple guarantors. If you sign with partners, agree in writing how you will share any payout so you are not left carrying all of it. A shareholder agreement is the natural place to do this.
- Get it reviewed. Have a lawyer read the guarantee before you sign, not after the demand arrives.
Can you get out of a personal guarantee once you have signed?
Usually not on your own. A signed guarantee is a binding contract, and you cannot simply walk away because your situation changed. Getting out generally takes either a release clause in the document or the lender’s written agreement to let you go.
There are situations where the law may release you. If the lender materially changes the underlying deal without your consent, for example by increasing the loan or extending the term, that change can discharge you, because you guaranteed the original arrangement and not the new one. This is exactly why the guarantees a lender drafts often say you stay bound despite changes, and why that clause is worth reading closely. If the underlying debt itself is void or unenforceable, the guarantee can fall with it. And if a lender required your independent legal advice and never got it, that gap can become a problem for the lender later.
None of these are guaranteed escapes. They depend entirely on the wording of your document and the facts of your situation, which is why a guarantor facing a demand should get advice quickly rather than assume the worst or hope for the best.
The mistakes we see guarantors make
The same errors come up again and again, and each one has a cost.
Treating the guarantee as a formality. People sign without checking whether the document is a guarantee or an indemnity, and only later learn they took on the broader of the two.
Signing an unlimited guarantee when a capped one would have done. A ceiling is often available for the asking, but only before you sign.
Assuming the guarantee ends when they leave. Selling your shares or stepping away from the business does not release you from a guarantee you already gave. The lender’s paper still has your name on it until the lender releases you in writing.
A spouse signing without independent advice. A spouse adds their name to help, does not fully understand the exposure, and the family home is suddenly behind a business loan.
Ignoring a demand letter. The limitation clock, the interest, and the legal costs all keep running while a guarantor hopes the problem goes away. It does not.
With a personal guarantee, almost all of the leverage sits at the front. What you settle before the deal closes protects you far more than anything that can be argued once the demand lands.Demet Altunbulakli, Founding Lawyer
Frequently asked questions
Is a verbal personal guarantee enforceable in Ontario?
Usually no. Ontario’s Statute of Frauds requires a guarantee to be in writing and signed by the guarantor, so a promise made only out loud is very hard to enforce. There are narrow exceptions, but you should never rely on a verbal arrangement, either as the person asking for the guarantee or the person giving it.
Does my spouse have to sign the guarantee too?
Only if the lender requires it, which some do when they want more security or when the family home is the main asset. If your spouse does sign, they should get their own independent legal advice first. A guarantee that puts shared property at risk is not something to sign on trust, and the separate advice protects both of you.
Can I be released from a guarantee if I sell my business?
Not automatically. Selling your shares or your business does not cancel a guarantee you already signed. You need either a release clause that triggers on the sale or a written release from the lender. Ask for one as a condition of the sale, because chasing it afterward is much harder.
If the business goes bankrupt, am I still on the hook?
Yes. That is the whole point of a personal guarantee from the lender’s side. The borrower’s insolvency is the moment the guarantee is meant to work, so the lender can pursue you personally even though the company cannot pay. Your guarantee stands separate from the company’s debt.
How long does a lender have to sue me on a guarantee?
Usually two years, but the starting point matters. Under the Limitations Act, 2002 the clock runs from when the claim was discovered, and for a guarantee that can be as early as the borrower’s first default rather than the date of the demand on you. Because it depends on the wording, do not assume you have more time than you do.
Do I really need a lawyer to look at a guarantee?
It is well worth it, and sometimes the lender insists on it anyway. A short review before you sign can turn an unlimited guarantee into a capped one, catch indemnity language hiding under a guarantee title, and tell you in plain terms what you are risking. That is far cheaper than finding out after a demand arrives.
The information provided above is of a general nature and should not be considered legal advice. Every transaction or circumstance is unique, and obtaining specific legal advice is necessary to address your particular requirements. Therefore, if you have any legal questions, it is recommended that you consult with a lawyer.
