A personal guarantee is a contractual undertaking by an individual to be personally liable for the obligations of a borrowing entity, typically given by directors of a corporate borrower in support of a loan to the company.
Personal guarantees on Australian commercial and private credit lending are standard practice for owner-managed businesses. The guarantee allows the lender to pursue the director's personal assets (home, investment property, savings) if the company defaults on the loan.
The economic purpose is alignment: a director who has personally guaranteed the loan has materially more skin in the game than one who hasn't. Lender expectation is that director conduct will be more careful when personal liability is at stake.
In practice, enforcement against directors is rare. Most defaults are resolved through workout, refinance or asset sale, the personal guarantee is the lender's backstop, not the default recovery route. But the guarantee being on file shapes the borrower's behaviour in the workout: directors with personal liability negotiate constructively.
Personal guarantees should be limited in scope (specific loan, specific borrower) and time. A bare unlimited guarantee covering "all present and future obligations" is uncommon in the Australian commercial market and should be pushed back on if proposed.