Four things a guarantee can be: payment, collection, performance, validity

The word guarantee covers at least four separate promises in small business finance. Which one you signed decides whether a creditor can come to you first, what has to go wrong before it can, and how much it can ask for.

Guaranty of payment

The broadest and the most common. You promise that the obligation will be paid. Because it is a guaranty of payment rather than of collection, the creditor generally does not have to sue the business first, exhaust the collateral first, or prove that the business cannot pay. It can proceed directly against you as soon as there is a default.

Look for the words "absolute and unconditional" and "primary obligor". That phrasing is doing exactly what it sounds like.

Guaranty of collection

Conditional. The creditor must first pursue the business — often to judgment, sometimes through execution that comes back unsatisfied — before it can reach you. Genuinely narrower, and genuinely rarer in this market. If you are told your guarantee is limited in this way, find the sentence that says so.

Performance guaranty

Common in purchase-structured advances, where the funder maintains that it has bought receivables rather than lent money and therefore does not guarantee repayment as such. Instead you personally guarantee the business's performance of its obligations under the agreement — its covenants.

The consequence depends entirely on the covenant list. If the covenants include not blocking the debit, not changing processors, not taking additional financing, and not misrepresenting anything, then a performance guaranty converts to personal liability the moment you do any of those things. The pitch "there is no personal guarantee here" and the document "you guarantee performance" can both be literally accurate at once.

Validity guaranty

Standard in factoring, and present in some advances. You are not promising that your customer pays. You are promising that the invoices are real, that the goods were delivered or the work done, that the receivables have not been sold or pledged elsewhere, and that you will not divert payments that belong to the factor. Breach it and the liability is personal, in the amount affected.

The clauses inside the guaranty document

The type of guaranty is only half of it. These provisions appear routinely and each removes something.

Two variations worth asking about

A limited guaranty caps exposure at a stated dollar figure, or at a percentage matching an owner's stake. It is not the default form, and it is not offered unless requested.

A spousal signature is sometimes requested. Where it is, it is worth understanding exactly what is being asked and why before anyone signs, because it can bring jointly held property into reach in ways a single signature does not. Whether that is the effect in your case depends on your state's property rules, and it is a question to ask before signing rather than after.

What the number actually is

Guarantors picture the balance. The document usually reaches further.

Then stack the clauses. A continuing guaranty means the exposure is not limited to this facility. Joint and several liability means it is not limited to your share. Reinstatement means it does not necessarily end when the balance is paid, if a payment is later clawed back.

Negotiating it before you sign

The existence of a guarantee is rarely negotiable on a small business facility. Its terms are more negotiable than most owners attempt.

• Ask for a dollar cap stated in the guaranty and covering principal, fees and costs together — not a cap on principal with everything else sitting outside it.
• Ask for it to be limited to this transaction, so a future facility needs a fresh signature.
• Ask for a proportionate cap where there are several owners, so joint and several liability does not turn the minority holder into the collection target.
• Ask for notice, so a demand is not the first you hear of a default.
• Ask what releases it. Repayment in full should end it in terms, and the drafting frequently does not say so.

Expect some of those to be refused. A refusal is information: it tells you what the creditor believes it is relying on, and which parts of the document it will not give up.

How to read the one in front of you

Find the operative sentence and identify which of the four promises it makes. Search the document for "unconditional", for "maximum", for "termination" and for "spouse". Check whether the guarantee survives termination of the main agreement and whether it can be revoked prospectively. Check who else is signing, and note that a signature by a second owner is usually joint and several rather than a split.

Then ask the question that matters commercially: if this business stops trading tomorrow, what exactly does this page allow to be asked of me personally, and can I live with that number?

Nothing here is legal advice. Guaranty law is state law, the drafting varies enormously, and a lawyer licensed in your state should read your specific document before you sign it or respond to a demand under it.