Dear Crabby,

Although I’m not formally a credit professional, I was asked a few months ago to take over the credit position at our company. As I plod along, I’m evaluating some of the documentation we use in the credit granting process, which includes our new customer credit application. I’ve noticed on the last page of the application there’s a question that reads, “Do you accept being personally responsible for any outstanding payments?   Yes  /   No   Initial ________.”

In a review of several dozen applications, I have yet to see this question marked “Yes” and initialed. And even if it was, I’m not sure to what legal extent the owner or president of our customer would be held personally responsible. What are your thoughts on this?

Signed: Unsure about Including Personal Guarantees



Dear Unsure,

This is a good question and in my experience, very rarely have I seen this kind of personal guarantee lightly included in a credit application, let alone having it marked affirmatively and initialed by the president or owner of a company.

That said, based on your credit evaluation you may need to have a personal guarantee if the credit worthiness of your commercial customer does not support the credit limit being requested. In my view, if a personal guarantee becomes necessary, this indicates a level of risk that should probably give you considerable pause as to whether the transaction is a viable one. At the same time, if your company deems this transaction lucrative and is willing to take the risk, I feel a personal guarantee should be a separate agreement, drawn up by your attorney, and formally signed and notarized by your customer. Additionally, it should be supported with verified bank account information and preferably other liquid assets of your guarantor accordingly. Hope this helps.


Dear Crabby is a credit and collection advice column by Nancy Seiverd, President, CMI Credit Mediators Inc. Your thoughts ( on what to advise are most welcome, and with your permission, we’ll reprint your comments in the next issue of our newsletter.

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