The personal guarantee, and what it reaches.
A personal guarantee makes you individually liable for chargebacks, fees and sometimes termination amounts if the business cannot pay. It is standard, it is usually unavoidable for a small business, and its scope is negotiable.
What this page settles.
Three questions, in the order most people ask them.
What it is
A personal guarantee is a clause — usually on the application page, often immediately above or below where you sign — in which you personally agree to meet the business’s obligations under the merchant agreement if the business does not.
It is typically required from anyone holding 25% or more of the business, and it is signed in your individual capacity rather than as an officer of the company. That distinction is the whole point of the document.
It is standard. Essentially every merchant agreement offered to a small business contains one, and an agent who tells you otherwise is probably not showing you the whole document. Agreement red flags.
Why acquirers insist on it
This is worth understanding properly, because it is the reason you will not get it removed and it is not unreasonable.
When you take a card payment, you get the money in a day or two. The cardholder’s right to dispute that transaction can run for months. In between, the acquirer is carrying the exposure — if you take $60,000 in card payments, fail to deliver, and close the business, the chargebacks still arrive and the acquirer pays them.
That is a real and well-exercised risk. Businesses do take deposits and fold. Businesses do have a bad quarter and vanish. The acquirer’s entire underwriting process exists to size that exposure, and the guarantee is what makes the exposure collectable when the corporate entity has nothing in it.
The alternatives an acquirer has are worse for you: a larger reserve, delayed funding, or declining the account. A guarantee is generally the cheapest form of security from the merchant’s point of view.
What it actually covers
This is the part to read, because the scope varies and most people never look.
Almost always: chargebacks and disputes the business cannot cover, and unpaid fees. These are the core and you should expect them.
Often: any debit balance on the account, including fees accrued after you stopped processing. A dormant account still attracts monthly fees, and those can be guaranteed too. How to switch processors.
Sometimes, and this is the clause to find: early termination amounts and liquidated damages. A flat termination fee personally guaranteed is a nuisance. A liquidated damages formula — your average monthly fees times the months remaining — personally guaranteed is a different order of exposure. Early termination fees.
Usually not, because it is a separate document: the equipment lease. A terminal lease is normally with a third-party finance company and has its own personal guarantee, which you may also have signed without noticing. That one is often the larger number. Equipment lease fees.
Duration is frequently open-ended, or until released in writing. A guarantee that does not expire on its own terms survives the account closing.
What an LLC does and does not do
A common and expensive misunderstanding, so plainly:
An LLC or corporation does not protect you from a personal guarantee. Setting aside limited liability for this specific obligation is the entire purpose of the document. If it did not do that, nobody would ask for one.
What the entity still does: it protects you from the business’s other liabilities, it is the right structure for all the usual reasons, and it keeps the obligation specific rather than general. Having an LLC and signing a guarantee is normal and sensible; believing the LLC makes the guarantee ineffective is not.
The practical consequence is the one to sit with: a merchant account is an obligation that can reach your personal finances, and it is worth treating the underwriting conversation and the chargeback-prevention work as personal risk management rather than administrative chores. Preventing chargebacks.
What is negotiable
Not its existence, usually. Its scope, often — and nobody asks.
Limit it to chargebacks and fees, explicitly excluding early termination amounts and liquidated damages. This is the single most valuable change and it is a reasonable request: the guarantee exists to cover risk, and a termination fee is not risk, it is a commercial penalty.
Cap it at a stated amount, or at a multiple of monthly volume. Less commonly granted and worth asking.
Make it fall away after a period of clean processing — twelve or twenty-four months with no disputes above a threshold. Some acquirers will agree to this; it costs them little once the account is established.
Get a release in writing when you close the account. If the account closes with a zero balance and no outstanding disputes, ask for written confirmation that the guarantee is discharged. This takes one email and is worth having on file.
Limit who signs. If there are four owners, four guarantees is four households exposed. Some acquirers will accept one or two.
Ask for all five. You will not get all five.
What raises the risk of it being used
The guarantee only matters if the account goes wrong, so the useful work is upstream.
Taking payment well before delivery. Deposits, pre-orders, long lead times, memberships. This is the single biggest driver of acquirer exposure and of guarantees being called. High risk explained.
A chargeback ratio climbing toward the monitoring thresholds. Watch it monthly, not annually. Chargeback monitoring programs.
An unexplained volume spike. If you are about to have an unusual month, tell your processor beforehand. A warned spike is a conversation; an unwarned one is a hold. Held funds and reserves.
Closing the bank account before the final fees settle. This turns an orderly exit into a balance owed, and a balance owed is what a guarantee is for.
A descriptor customers do not recognise. The cheapest dispute prevention there is. Billing descriptors.
What we charge
Interchange + 0.50% + 10¢ in person, interchange + 0.75% + 25¢ keyed, with no contract, no monthly fee, no monthly minimum and no termination fee.
We do not use terms or termination fees, which means there is no liquidated damages amount for a guarantee to reach — the exposure is chargebacks and fees, which is what a guarantee is actually for. Send us whatever you are being asked to sign and we will tell you what its guarantee covers, including when it is somebody else’s paperwork.
While we are on the subject
Can I avoid a personal guarantee?
For an established business with substantial trading history and strong financials, sometimes. For a small business or a new one, generally not — and refusing outright usually ends the conversation.
Does my LLC protect me from it?
No. A personal guarantee is a deliberate exception to limited liability — that is its entire purpose. Signing one sets the corporate shield aside for this obligation.
What exactly am I liable for?
Principally chargebacks the business cannot cover and unpaid fees. Whether it extends to early termination amounts depends on the wording, which is why that clause is worth reading.
How long does it last?
Often indefinitely, or until released in writing. Some can be negotiated to fall away after a period of clean processing — ask for that in writing.