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Why a personal guaranty can make a big difference in collections

On Behalf of | Jun 27, 2022 | Business Debt Collection

As a business owner, you probably already know the importance of a strong contract. This holds true whenever you provide your services or products to your commercial customers on credit. The terms of that contract become very important if your customer fails to pay. One aspect of a credit application in particular can be critical – the personal guaranty. At Law Offices of Alan M. Cohen & Associates LLC, we have been helping clients draft and enforce credit agreements since 1994 and we understand the significance of each term in those agreements. Personal guaranties perform a very specific function.

What is the personal guarantee?

Under Massachusetts law, a personal guaranty makes the person signing the agreement, known as the guarantor, personally liable for the debt if their business does not pay according to the terms of the agreement. Not only does this give you a secondary source of payment, but in a commercial context, it also gives your customer a strong incentive to pay the debt on time through the business.

Guarantees can either be conditional or unconditional. A conditional or limited guarantee puts a limit on how much the guarantor must pay personally, or it could put a limit on the creditor’s time to recover or, in some cases, it could limit both time and amount. An unconditional guarantee, on the other hand, has no limits. The guarantor is on the hook for the entire debt.

How it helps you collect on debt

As stated above, your guarantor will likely make every effort to ensure that the business pays the debt in a timely manner. In addition, if the commercial debtor does default, you can go straight to collecting from the guarantor. You do not need to jump through other hoops or exhaust any other rights under your agreement. Massachusetts law tends to favor enforcement of a guarantor’s obligations.

Review your credit agreements with a professional

Your agreement must meet certain legal requirements in order for the courts to enforce it. We recommend that you have a knowledgeable lawyer either draft or review your agreements before putting them to use. The skilled commercial collections lawyers at Law Offices of Alan M. Cohen & Associates LLC have worked with personal guaranties for decades and can make sure they fit your needs. To schedule an appointment, contact us online or call us at 508-763-6604.