Performance guarantee

## What it guarantees
An advance is documented as a purchase of future receipts. An individual promising to repay the purchased amount would undercut that, because a promise of repayment is what a loan has. So the individual signs something narrower: a guarantee that the business will not do certain specified things.

The covered breaches typically include:

• Blocking, revoking, reversing or diverting the agreed ACH debits or card split
• Closing the operating account, or moving deposits to an account not disclosed to the funder
• Changing card processors or opening an additional MID without consent
• Taking additional financing where the agreement prohibits it
• Misrepresenting revenue, ownership or existing positions in the application
• Transferring or selling the business, or ceasing operations, without consent
• In some drafts, filing for bankruptcy protection

## What it does not guarantee
On its face, it does not make the individual liable simply because the business slowed down and could not produce the purchased receipts. That risk sits with the funder, and it is the feature that supports the transaction being a purchase rather than a loan. A merchant who keeps the account open, lets the debits run, cooperates with reconciliation and still fails should not, under a genuine performance guarantee, face personal liability for the shortfall.

## Why the gap narrows in practice
The list of breaches is broad enough that a failing business usually trips one on the way down. Accounts get closed. Debits get blocked because payroll has to clear. Payments stop. And most drafts do not limit the guarantor to damages caused by the breach - they make the guarantor liable for the entire unpaid purchased amount plus default fees, interest and collection costs. The guarantee is therefore narrow in trigger and unlimited in consequence.

Three things decide the real exposure: what the operative sentence says is guaranteed, how widely breach is defined, and what the guarantor owes once a breach occurs. Whether a court treats a particular performance guarantee as a disguised repayment guarantee - and what that means for the characterisation of the whole transaction - is decided under the governing law named in the contract and turns on the specific wording.