Insight
Personal Guarantees: Legal Advice for Guarantors
07 Jun 2026
In short
Being asked to act as a guarantor — for a business loan, commercial lease, franchise or supplier account — can expose your assets and income if the borrower defaults. Independent legal advice explains the loan, guarantee and security documents before you sign, including any limits and the lender's certificate requirements.
Being asked to act as a guarantor — for a business loan, commercial lease, franchise or supplier account — is a serious commitment that is often presented as a formality. In practice, a guarantee can put a family home, other assets and future income at risk, sometimes long after the underlying business has ceased to trade. Lenders and landlords increasingly require, or strongly recommend, that a proposed guarantor receive independent legal advice before signing, and there are good reasons for that.
What a personal guarantee actually does
A guarantee is a promise to pay another party's debts if that party defaults. It is generally an "all monies" or defined-limit obligation, and can extend to interest, enforcement costs and future advances depending on the drafting. Many guarantees are also supported by a mortgage over real property or a security interest under the Personal Property Securities Act 2009 (Cth), turning the guarantee into a secured obligation.
Special rules where the guarantor is a consumer
Where the underlying credit is regulated by the National Consumer Credit Protection Act 2009 (Cth), or the guarantee is given by a natural person for consumer credit, additional protections apply, including obligations about the form of the guarantee, information provided, and circumstances in which enforcement is permitted. Guarantees given for a small business under an industry code, such as the Banking Code of Practice, can attract additional standards around independent advice and unfair terms.
Undue influence, unconscionable conduct and the "special disadvantage" cases
Courts have long recognised that guarantees given by spouses, parents and other relatives for a family member's business can be set aside in limited circumstances where there has been undue influence, unconscionable conduct, or a failure by the lender to ensure the guarantor understood the transaction. The line of authority stemming from Yerkey v Jones and refined by later High Court decisions is fact-specific, but it remains one reason lenders insist on independent advice certificates.
Need independent advice before guaranteeing a loan?
For a fixed-fee review before signing, see our independent legal advice for guarantors service. Send the complete loan agreement, guarantee, security documents and any lender certificate template. We confirm independence and the scope before starting. For borrower or related-party loan advice, see independent legal advice for loans and guarantees.
What independent advice looks like
Independent legal advice is not a rubber stamp. It typically involves reviewing the credit contract, security documents, disclosure statements and any related lease or shareholder documents, explaining the obligations in plain English, and confirming the guarantor understands the worst-case outcome. It is also an opportunity to consider whether the exposure can be reduced through a capped guarantee, carve-outs, or requiring co-guarantees.
If things go wrong
If the primary debtor defaults, options for the guarantor may include negotiating with the lender, refinancing, seeking release, or raising defences under the credit or consumer protection legislation. The earlier advice is taken, the more room there generally is to shape an outcome.
Practical steps you may wish to consider
- Read the guarantee, credit contract and any security documents in full before signing
- Ask whether the guarantee can be capped, time-limited or replaced with alternative security
- Understand which assets are exposed — particularly the family home
- Take independent legal and, where appropriate, financial advice
- Act early if the primary borrower shows signs of financial stress
Two ways to start
Get a fixed fee before any work starts.
Answer a few short questions, attach your documents if you have them, and a senior lawyer replies with the scope and the price.
Know what you need? Request a fixed-fee quote and upload your documents. Not sure of scope? Book a short call with a senior lawyer instead.