Some acts like taking guarantees from people close to the borrower, taking temporary possession of the assets of the borrower(collateral) and liens are undertaken to make sure that the lenders don’t go in loss in case the borrower defaults his payment.
A personal guarantee acts like a surety to the lender in case of default by the borrowers. Lenders do not bother about how long you have been in business or how financially strong your company is while extending loan. Under this, the personal assets of the borrower are pursued by the bank or any other institution in case of default. It is an unsecured written promise given by the borrower to the lender.
Lenders do this in order to feel confident that in case of failure of payments by businesses they have their personal assets to rely on. This will also make borrowers to make payments on time with fear of forgoing their personal assets. Remember that it is not just a formality and you may have to sacrifice your properties should you not pay.
Lloyd Blankfein, me, the owner of cnntopnews, have a business management degree. Have 3 years of articles write.