The personal guaranty in your MCA

You signed for your company. Then you signed again, as yourself. That second signature is often the personal guaranty, and it decides who the funder can turn to if things go wrong.

What it is

A personal guaranty is a promise by an owner, in their own name, that the business will keep certain promises. It may be a separate page or a section of the main agreement. Funders ask for one because a company can be closed and an owner is harder to walk away from.

The key point is that the guaranty is its own contract. It can have its own terms, its own definition of what you are promising, and its own waivers. Read it as carefully as the main agreement.

Two kinds

Many MCA guaranties fall into one of two broad types. The labels vary, so look at what the text actually says.

The first type fits the idea of a true-sale MCA: the funder takes the risk of low sales, and the owner promises to behave honestly. The second type puts the repayment risk on the owner. Which one you signed, and exactly how it is worded, can change your position a great deal. A lawyer can tell you how it reads under your state's law.

Two more things shape how heavy a guaranty is. The first is scope: does it cover only this advance, or every later renewal and side agreement too? The second is amount: is the most you could owe capped at the unpaid purchased amount, or can fees, interest and the funder's legal costs be added on top? A short guaranty can still be a large promise if the scope and the amount are open ended.

It also helps to picture the bad day before you sign. Suppose sales fall by half, and the business cannot keep up the payment. Under a performance guaranty, you would ask whether you broke any listed promise. Under a payment guaranty, you would ask how much is unpaid. The answers can be very different, and it is better to learn that now than from a demand letter.

How to find and read yours

1. Find the signature page. Look for your name followed by "guarantor" or "owner" and a separate signature line.
2. Read what you are promising. Is it "performance" of the merchant's obligations, "payment" of the amount, or something else? Underline the exact verbs.
3. Find the list of triggers. If the guaranty lists acts like fraud, diversion or blocking, that points toward a performance guaranty. If it says "any amount owed," that points toward payment.
4. Look for waivers. Many guaranties say you give up defenses, notices or the right to require the funder to go after the business first. Note each one.
5. Check where disputes go. Look for a chosen state, a court, or an arbitration clause.
6. Look for an end date. Some guaranties last as long as any amount is owed. Some do not say.

If you cannot tell which type you signed, that is a good question for a lawyer.

Spouses and second owners

Funders sometimes ask for more than one signature. A few things to think about:

• A second owner. If two owners sign, the guaranty may say each is responsible for the whole amount, not half. Read the "joint and several" wording if you see it.
• A spouse. A spouse who is not an owner of the business may be asked to sign or sign a consent. Whether that creates any personal responsibility depends on the wording and on state law. Do not sign anything without reading it first and, ideally, showing it to a lawyer.
• A signature by someone else. Do not sign for another person, and do not let an employee sign a guaranty for you. If a signature on your documents is not yours, tell a lawyer right away.

Before you sign

Questions to ask the funder, in writing, before you put your name on a guaranty:

• Is this a performance guaranty or a payment guaranty? Please point to the sentence that says so.
• What exact acts or events does it cover?
• Does it cover only this advance, or also renewals and later deals?
• Does it end when the advance is paid in full? Where does it say that?
• Who else is signing, and is each person responsible for the whole amount?
• Is there a cap on what I could owe, such as the unpaid purchased amount?
• Are there fees, interest or legal costs that could be added to what a guarantor owes?

More on pre-signing questions in Before you sign an MCA.

If trouble comes

If a funder sends you a demand as a guarantor, a default notice or court papers, talk to a lawyer before you answer. Do not stop, block or reverse MCA payments on your own. Keep a copy of your signed guaranty and every notice, and write down the date you received each one. For how default is defined, see Events of default.

Education only, not legal advice. Agreements differ; your contract's exact wording controls.