Your LLC or corporation exists to keep business debts away from your house and savings. A personal guaranty gives that protection back. Landlords, lenders, and suppliers routinely ask owners to sign one — and most owners sign without reading past the first paragraph. Before you do, understand exactly what California law lets a creditor collect from you personally, and which terms are negotiable.
What a guaranty actually is
Under Civil Code § 2787, a guarantor (California law merged the old surety/guarantor distinction) promises to answer for the debt or default of another — here, your company. If the company does not pay, the creditor collects from you: your personal bank accounts, investments, and other non-exempt assets are on the table, and in a community-property state like California, the community estate can be exposed as well. The guaranty is a separate contract from the underlying lease or loan, with its own terms, and those terms — not fairness — determine your exposure.
Read for these five terms first
- Continuing vs. specific. A "continuing guaranty" covers not just today's obligation but future extensions of credit — new draws, renewals, additional orders. Civil Code § 2815 lets a guarantor revoke a continuing guaranty as to future transactions, but only prospectively and only if you actually send the revocation.
- Capped or unlimited. Many guaranties cover "all obligations now existing or hereafter arising," with no dollar limit. A cap is one of the most valuable concessions you can negotiate.
- Waiver of defenses. California gives guarantors statutory protections — including exoneration under Civil Code § 2819 when the creditor materially alters the underlying obligation without consent. Standard forms waive nearly all of them, as § 2856 expressly permits. A guaranty full of waivers is a promise to pay with almost no exits.
- Payment vs. collection. A guaranty of payment lets the creditor come straight to you on default; a guaranty of collection requires the creditor to pursue the company first. Forms almost always say payment.
- Attorney fees. Most guaranties include a fee clause. Under Civil Code § 1717 fee clauses run reciprocally to the prevailing party, but in practice this term means an unpaid $80,000 debt can become a six-figure judgment.
Terms worth negotiating
Creditors expect pushback from represented signers, and modest asks often succeed:
- A dollar cap, or a "burn-down" that reduces the cap as the debt is paid or as the lease term runs.
- A sunset. The guaranty expires after a defined period of on-time performance — common in commercial leases ("good guy" and limited-term structures).
- Scope limits. Cover the specific loan or lease, not "all obligations"; exclude future amendments made without your written consent.
- Notice and cure. Require the creditor to notify you of the company's default and give you a chance to cure before liability attaches.
- Proportionality among owners. If multiple owners sign, negotiate several (proportionate) liability rather than joint and several, or at least a contribution agreement among the guarantors.
- Spousal exposure. Understand before signing whether community assets are reachable, and whether the creditor is requesting a spouse's signature — a significant escalation that deserves its own advice.
Practical safeguards after signing
Keep a copy of every guaranty you have signed — owners often lose track, and stale continuing guaranties from long-finished relationships remain enforceable until revoked. Calendar any sunset or revocation rights. If you sell the company or leave the business, do not assume the guaranty ends: negotiate a release from the creditor as part of the transaction, in writing. And if the creditor and your company amend the underlying deal — a bigger credit line, a longer lease — review the amendment before deciding whether to consent in writing or expressly decline, and avoid implied consent by conduct.
If you are being pursued on a guaranty
Liability is not always as automatic as the creditor's demand letter suggests. Whether the underlying debt is accurate, whether the obligation was altered without consent, what was validly waived, and whether revocation occurred are all real questions. A California business contracts attorney can review the instrument before you sign — or map your defenses if a demand has already arrived, before it turns into business litigation.
Talk to a California business attorney
A guaranty puts your personal assets behind a business debt, so have it reviewed with the same care as the deal itself. Schedule a free consultation or call (949) 418-2113.
This article is attorney advertising and provides general information only. It is not legal advice and does not create an attorney–client relationship. Facts matter; consult a lawyer about your specific situation.
