Guarantor: Meaning in a Merchant Cash Advance
A guarantor is a person who promises to stand behind another party's obligations under a contract. On a merchant cash advance, the business owners usually sign as guarantors, backing the business's promises in the merchant agreement.
What does guarantor mean?
The advance is with your business. The funder also wants a person on the hook, so it asks each significant owner to sign a personal guarantee. As a guarantor, you're promising that the business will keep its word under the contract, and in some agreements, that you'll pay if it doesn't.
Why does guarantor matter to your business?
Being a guarantor puts your personal finances in play if the business breaches. Guarantees vary. Some cover only performance promises, like not diverting sales. Others cover payment more broadly. Read yours before signing so you know what you're guaranteeing.
What if there's more than one guarantor?
When several owners guarantee, each is usually responsible for the full guarantee, not just a share.
What is a validity guarantee?
Many MCA guarantees are written as validity or performance guarantees. They cover the owner's promises about the business's conduct rather than guaranteeing the funder will collect the full amount. That distinction matters a great deal if the business fails for reasons outside your control. Read how yours is written.
What should a guarantor check before signing?
Ask the funder which kind of guarantee it is, and ask an attorney if the wording is unclear.
Where will you see it?
In a separate personal guarantee document or a guarantee section of the merchant agreement, signed in your own name.
Is this legal advice?
This is general information, not legal advice. For your guarantee's specifics, talk to an attorney.
Which terms are related to guarantor?
- Merchant agreement
- Recourse
- Validity guarantee
- What happens to an MCA if the business owner dies?
- Can a non-citizen get a merchant cash advance for a US business?
- Soft credit inquiry
The full list is in the glossary. Owners ask about this in What's the difference between an MCA approval and an offer?.
A term on your offer you don't recognize?
Send us the line and we'll tell you what it means. Call 877-FUND-654 with any question. We call you back, usually the same business day, and we always talk with you before we shop your file.