While this is the case for factoring companies it is true for most commercial lenders in general. A personal guarantee in conjunction with a factoring agreement is not a preferred method of repayment. From the factor’s standpoint it’s seen as a deterrent to fraudulent misbehavior.
When we are financing your 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 and then satisfied. It simply takes too long to be considered viable. Factoring companies generally require a personal guarantee for a couple reasons; 1.) to be used in cases where there is a planned conspiracy to defraud by carefully manipulating the factor, and 2.) if the bank where the factor has its own line of credit requires that all factoring clients sign one.
Be aware that we, as a factoring company who leverages our ability to borrow from other sources, sign an extensive personal guarantee much more onerous than a typical factoring company example of it.
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. The point is, there are plenty of efficient methods for problem invoices to get paid. Ultimately the personal guarantee is a tool to keep a fox out of the hen house. If you don’t have plans to be a fox, then you shouldn’t be concerned about the guarantee.