Personal Guarantees In New Zealand: What Business Owners Need To Know

It’s a familiar moment for many New Zealand business owners: you’ve found the right supplier, your bank is ready to approve finance, or your landlord has offered you the perfect premises.

Then the paperwork arrives, and buried in the “standard” terms is a clause asking you to sign a personal guarantee.

This can feel like a small admin step - but it’s one of the biggest legal and financial risks a director or business owner can take on. A personal guarantee can make a business debt become your debt too, even if you run your business through a limited liability company.

Below, we’ll break down what personal guarantees are in New Zealand, when you’ll see them, what risks to watch for, and how to negotiate a better position before you sign.

What Is A Personal Guarantee (And Why Do Businesses Ask For One)?

A personal guarantee is a promise you make as an individual that you’ll be responsible for a debt or obligation if your business doesn’t pay or perform.

In practice, it usually means:

• your company enters a contract (or takes on finance), and
• you sign a separate guarantee section (or guarantee deed) personally, and
• if the company defaults, the supplier/lender/landlord can pursue you personally for the money (depending on the wording and the circumstances).

This is why personal guarantees are so common when you’re trading through a company. Ordinarily, a company structure gives you limited liability - meaning the company is responsible for its own debts and liabilities, not you personally.

By signing a personal guarantee, you may be agreeing to take on personal responsibility for the company’s obligations in certain situations, which reduces the other party’s risk.

Personal Guarantees vs Company Liability

Even if you’ve done everything “right” by trading through a company, a personal guarantee can reintroduce personal risk.

That doesn’t mean personal guarantees are always bad or avoidable - but it does mean you should treat them as a serious decision, not a standard formality.

Why Are Personal Guarantees So Common In NZ?

From the other party’s perspective, personal guarantees are attractive because:

• many small companies have limited assets (especially startups)
• it can be hard to recover debts from an insolvent company
• they want extra leverage to encourage payment
• they may see a guarantee as a “normal” credit requirement

In New Zealand, you’ll see this especially where a business is new, has a short trading history, or is requesting significant credit terms (for example, paying invoices 30 days after supply).

When Will You Be Asked To Sign A Personal Guarantee?

Personal guarantees come up more often than many business owners expect - and not only in bank lending.

Common situations include:

• Business lending and finance: loans, overdrafts, equipment finance, vehicle finance
• Commercial leasing: when renting premises, especially for a new business or small company
• Trade credit and supplier accounts: “credit applications” with payment terms
• Service agreements: where the provider extends credit, provides ongoing services, or invests upfront
• Franchise and licensing arrangements: where the franchisor/licensor wants added security

It’s also common for guarantees to appear in documents you might not treat as “high risk”, like standard supplier terms or an onboarding form for a trade account.

If you’re signing contracts often, it’s worth having a consistent process for review - the same way you’d treat pricing, delivery times, or cancellation rights in your Business Terms.

What Are The Risks Of Signing A Personal Guarantee?

The biggest risk is simple: your personal assets can be on the line.

Depending on the wording, a personal guarantee can allow the other party to pursue you for unpaid amounts if the business can’t pay. That might include:

• the outstanding principal (the amount owed)
• interest (sometimes at a default rate)
• legal costs of debt recovery (if the document allows it)
• enforcement costs (for example, if they take steps to enforce judgment)

This can have a flow-on effect to your personal life and financial position - especially if you’ve got a mortgage, personal savings, or jointly owned assets.

“But I Have A Limited Liability Company”

This is one of the most common misunderstandings we see.

Yes, a company generally separates you from business liabilities. But once you sign a personal guarantee, you may have agreed to take on the risk personally if the company doesn’t meet its obligations.

That’s why directors often put effort into getting their structure right early, including documenting internal governance properly with a Company Constitution and clarifying ownership and decision-making in a Shareholders Agreement. While those documents don’t stop a third party asking for a guarantee, they can reduce internal disputes if things get stressful.

Joint And Several Liability (If More Than One Person Signs)

Many personal guarantee clauses are drafted so that if two directors sign, each director is responsible for the full amount (not just “their half”). This is often described as joint and several liability.

That means:

• the creditor can pursue either guarantor for 100% of the debt (subject to the guarantee terms), and
• it’s then up to the guarantors to sort out contribution between themselves.

This can become a major issue if business partners fall out, separate, or one person can’t pay.

Unlimited Guarantees And “All Monies” Clauses

Some guarantees are limited to a specific amount or contract. Others are drafted broadly to cover:

• all debts now and in the future (“all monies”)
• any variations or renewals of the contract
• additional services provided later

This is where business owners can get caught out. You might think you’re guaranteeing a particular supply agreement, but the drafting may capture much more.

Guarantees Can Survive Changes To The Business

It’s also common for guarantee wording to keep applying even if:

• the business changes its trading name
• you restructure the group (for example, add another company)
• there’s a change in directors or shareholders
• the supplier changes their terms (if the guarantee is drafted to extend to variations)

If you’re going through a change of ownership, it’s worth being extra careful - guarantees and debts can become messy when businesses are sold or restructured. That’s one reason legal due diligence is so important in business transactions, including under a Business Sale Agreement.

What Should You Check Before You Sign A Personal Guarantee?

Personal guarantees aren’t always avoidable - but you should always understand what you’re agreeing to.

Here’s a practical checklist of what to look for before you sign.

1) Who Is Actually Giving The Guarantee?

Make sure the document clearly identifies the guarantor (you) and the debtor (your company). This matters because sometimes guarantees accidentally name the wrong entity, or they’re drafted so broadly they could capture multiple related entities.

If you operate with multiple entities (for example, one company employs staff and another holds IP), clarify exactly which entity is taking on the main obligation, and whether you’re guaranteeing just one entity’s performance or more.

2) What Obligations Are Guaranteed?

Ask:

• Is it limited to one specific contract?
• Does it cover future orders or future credit?
• Does it cover interest and legal costs?
• Does it cover “any other amounts” the creditor claims are owed?

If it’s broad and unclear, that’s usually a sign you should negotiate or get advice before signing.

3) Is There A Dollar Cap?

A guarantee without a clear cap can expose you to a much larger amount than you expect - especially where goods/services will be provided over time.

A cap might be expressed as:

• a fixed maximum amount (e.g. $50,000)
• a limited period (e.g. applies for 12 months only)
• a limit tied to a particular facility (e.g. overdraft limit)

Even if a supplier says “we never enforce it”, a guarantee is designed for the worst-case scenario. You want it drafted for the worst-case scenario too.

4) Can The Other Party Change The Deal Without Your Consent?

Some guarantees allow the creditor to vary the underlying contract (like pricing, payment terms, scope, or credit limit) and still keep you bound as guarantor.

In plain English: they can change the risk, and you’re still on the hook.

It’s worth checking whether the guarantee requires you to consent to variations, or whether it automatically applies to changes.

5) What Are The Enforcement Rights?

Guarantees can give the creditor strong enforcement rights, such as:

• the ability to demand payment immediately when the company defaults
• the ability to pursue you without first exhausting claims against the company (if the guarantee allows this)
• rights to recover costs on a solicitor-client basis (which can be higher than standard court costs)

If the guarantee is tied to a lease, enforcement can also link into the lease’s default provisions. If you’re leasing premises, it’s worth having the lease reviewed so you understand the risk profile you’re taking on under the Commercial Lease Review process.

6) Are You Signing Anything Else (Like An Indemnity)?

Many documents include not only a guarantee, but also an indemnity.

While the terms are sometimes used interchangeably in everyday conversation, they can operate differently legally. An indemnity can create a primary obligation to pay, and in some situations it can be easier to enforce than a standard guarantee.

If you see a “Guarantee and Indemnity”, treat that as a sign to slow down and get the wording reviewed - this is exactly the kind of document that should be tailored and understood before you sign, such as a Deed of Guarantee and Indemnity.

Can You Negotiate A Personal Guarantee (Or Avoid One)?

In many cases, yes - at least to some extent.

We often see business owners assume personal guarantees are “take it or leave it”. Sometimes they are, but often there’s room to negotiate if you ask early and you’re clear about what you can offer instead.

Options To Reduce The Risk

Depending on the situation, you might be able to negotiate:

• A dollar cap: limiting your exposure to a specific amount
• A time limit: for example, it falls away after 6–12 months of good payment history
• A narrower scope: only covering a specific contract, purchase order, or lease term
• Trigger-based enforcement: only enforceable after a certain type of default
• Release conditions: the guarantee is released if the business meets certain milestones

In some cases, you may be able to avoid a personal guarantee by offering different security (for example, a deposit, prepayment, or another arrangement), but whether that’s realistic depends on the other party and your bargaining position.

Be Careful About “Standard Form” Documents

One common issue is that the guarantee sits inside a broader standard form contract, which also includes things like:

• automatic renewals
• default interest and fees
• unilateral variation clauses
• termination rights that heavily favour the supplier

This is why it’s often worth reviewing the whole agreement rather than focusing only on the “guarantee” paragraph. You’re not just signing a personal guarantee - you’re signing the whole risk package.

If You Have Business Partners, Align Before You Sign

If more than one director is signing, talk about it internally before you commit. Questions to resolve upfront include:

• Who is signing, and why?
• Will you both sign, or only one person?
• Will you have an internal contribution agreement if the guarantee is enforced?
• What happens if one partner exits the business?

This is also where good internal documentation and governance can save you serious headaches later, especially when responsibilities and decision-making are clear from day one.

Key Takeaways

• A personal guarantee can make you personally responsible for business debts if your company defaults, even if you trade through a limited liability company.
• Personal guarantees are common in NZ for business loans, trade accounts, supplier credit, and commercial leases, especially for newer or smaller businesses.
• Before signing, check the scope carefully - including whether it’s “all monies”, whether there’s a cap, whether it covers legal costs and interest, and whether it continues after contract variations.
• If more than one director signs, you may be exposed to joint and several liability, meaning you could be pursued for the full amount even if the other guarantor can’t pay.
• In many cases you can negotiate better terms, such as limiting the guarantee to a specific amount, timeframe, or contract.
• If the guarantee includes an indemnity (or is drafted broadly), it’s a strong sign you should get the document reviewed before committing.

If you’d like help reviewing a personal guarantee or negotiating safer contract terms before you sign, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.