What Is a Personal Guarantee—And How Is It Different from Personal Collateral?

When you're evaluating loan options for your franchise, you’ll likely encounter two common requirements: a personal guarantee and personal collateral. Though often mentioned together, these terms have distinct meanings—and very different implications for your personal finances.

To make informed borrowing decisions, it’s important to understand how each works, what protections they affect, and how they impact your control over personal assets during the life of the loan.

Understanding the Personal Guarantee

A personal guarantee is a legal commitment that makes the individual borrower personally responsible for the loan—even if the business is the entity borrowing the funds.

“All loans that a franchisee is likely to access—whether SBA or conventional—are going to require a personal guarantee,” says Travis Perrine, Director of Business Development at ApplePie Capital. “It overrides the liability protections that typically come with forming an LLC or corporation. If the business defaults and the lender has exhausted all other options, they have the legal right to pursue repayment from the guarantor personally.”

Importantly, a personal guarantee doesn’t show up on your credit report while the loan is in good standing. But if the business defaults, the lender can take legal action to recover the remaining balance—putting your personal assets, credit, and financial stability at risk.

What Makes Personal Collateral Different

While a personal guarantee makes you legally responsible for repayment, personal collateral gives the lender a secured interest in a specific asset—typically real estate such as your primary residence or an investment property.

“A lot of franchisees ask, ‘If I’m already personally guaranteeing the loan, why does it matter if the lender also takes my house as collateral?’” Travis notes. “The real difference is control. With a personal guarantee, the lender has the right to sue. But with a lien on personal property, the lender already has a legal claim to that asset—regardless of whether you default.”

In the SBA world, personal collateral is required if the loan is over $350,000 and the borrower has available assets. For example, if you own a home with equity, SBA lenders will place a second lien behind your mortgage.

That lien can restrict your ability to refinance, take out a home equity loan, or even sell the property. “The lender won’t allow you to pull out equity or sell the property without replacing the value of the collateral,” Travis says. “You may be forced to lock up sale proceeds in a CD or roll them into another property where the lender can place a new lien.”

ApplePie’s Approach: Simplicity and Flexibility

Unlike SBA loans, the ApplePie Core Loan® requires only a personal guarantee—not personal collateral. That means your personal real estate remains entirely under your control.

“We’re not going to put your house on the loan,” says Travis. “You’re still personally liable for repayment, but we’re not tying up your property or limiting how you use your own assets.”

This approach offers more flexibility and can help speed up funding—especially useful for franchisees planning an expansion or looking to refinance.

Key Takeaways for Franchisees

A personal guarantee is a legal commitment to repay if your business can’t—but it doesn’t immediately affect your property or credit.
Personal collateral gives lenders a direct claim on your assets, limiting how you manage them—even while your loan is in good standing.
SBA loans may require both, depending on the loan size and your personal asset profile.
The ApplePie Core Loan® keeps things simple: you make a personal guarantee, but retain full control over your personal property.

Considering refinancing or weighing loan options for growth? Understanding the difference between these two requirements can help you make the best choice for your business—and your personal finances.

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This article is for educational purposes only and does not constitute legal or financial advice. Always consult your advisors before making financing decisions.