Most commercial financing, such as invoice factoring, normally require the leading shareholder of the company to sign a personal guarantee waiver. For a factoring company, using a personal guarantee is not a preferred method of repayment of outstanding invoices. From the factors point of view, the PG is used as a deterrent to outrageous fraudulent behavior.
When factoring invoices, the turnaround on repayment is normally 30 – 45 days. The process of recapturing funds from an advance by going after the owner personally could take a couple years by the time it goes to court and a judgment is rendered. It simply takes too long to be considered a viable option. Factoring companies generally require a personal guarantee for a couple of reasons; 1.) protection from a planned conspiracy to defraud, and 2.) the factoring company has its own line of credit, and its own lender requires that all factoring clients sign one.
By signing a personal guarantee the factor will not be looking for you to repay an unpaid invoice out of your pocket. It is more expedient to take the lost amount out of the reserve or set up a repayment plan by reducing the advance rate. Make sure you understand the true liability of signing a personal guarantee for accounts receivable financing before making a blanket statement like you refuse to sign one.