Can You Negotiate Away a Personal Guarantee? What to Ask For in NZ
Sometimes. A supplier can't usually be forced to drop a personal guarantee, but many will cap it, time limit it or release it after a good payment history if you ask before you sign. Ask for a dollar cap, a review date, a release clause or an alternative such as a deposit, in writing.
Can You Actually Avoid It?
Not always. Suppliers ask for a guarantee because a newer company has little trading history and few assets of its own. A large wholesaler working from a standard form may simply say no to removing it. "No guarantee, no account" is a legitimate position for a supplier to take.
Limiting a guarantee is a much more realistic goal than removing it. If you are not sure what one is, read what a personal guarantee on a trade account means first. For how it differs from a director's guarantee, see director's guarantee vs personal guarantee.
What to Ask For
| Ask | What it does | How suppliers tend to respond |
|---|---|---|
| A cap equal to the credit limit | Your exposure can't exceed the limit | Often the easiest request to get agreed |
| A time limit, such as 12 months | The guarantee ends and the supplier has to reassess | Sometimes agreed, especially for a modest limit |
| A release clause after 12 months of on time payment | The guarantee falls away once you have a payment history | Commonly considered for a well managed account |
| This account only, not everything the company owes | A limit increase needs a new signature | Sometimes agreed |
| A lower starting limit | A smaller limit means a smaller guarantee | Often accepted, and you can ask to increase it later |
| Retention of title and PPSR registration over the goods | Gives the supplier security in the stock it supplies instead of your personal assets | Worth offering where the goods are easy to identify |
| A deposit or shorter terms on the first orders | Reduces the supplier's exposure while you build a record | Common for new accounts |
Illustrative example: a Hamilton landscaping supplies company that is eight months old applies for a $15,000 account. The supplier's form asks for an unlimited director's guarantee. The director replies asking for a cap at $15,000 and a review after 12 months, and offers retention of title with a PPSR registration. The supplier agrees to the cap and the review. The guarantee wasn't dropped, but the worst case is now $15,000 and there is a date to revisit it.
Words You Can Use
Send this to the credit manager before you sign, not to the counter:
"Thanks for the application form. We're happy to give a director's guarantee, but we'd like it capped at the $15,000 credit limit and reviewed after 12 months of on time payment. We can also offer a retention of title clause with a PPSR registration over the goods you supply. Can we add that to the form before we sign?"
Offering a specific alternative works better than just asking them to take the guarantee out. It shows you understand why they want protection and gives them something to say yes to.
What Suppliers Will and Won't Accept
- Usually accept: a cap at the credit limit, a lower starting limit, a deposit on early orders, and security over the goods they supply.
- Sometimes accept: a time limit or release clause, especially once you have a year of clean payment history.
- Rarely accept for a new company: no security of any kind on a large limit.
Before You Sign
- Get the change on the signed document. A verbal promise from the credit team is hard to rely on if the written guarantee says something else.
- Don't sign anything blank or incomplete.
- Read the clause on interest and costs, and whether the guarantee is continuing.
- Remember section 25. A mistake about what a guarantee means is not a ground for relief under the Contract and Commercial Law Act 2017, so understand it first.
- For a large limit, get a short review from a lawyer or accountant.
- Plan the exit. If you sell the business or resign as a director, ask the supplier to release the guarantee. See what a personal guarantee means.
If the guarantee is a deal breaker, compare other ways to buy: alternatives to trade credit for NZ business customers and trade accounts vs business instalments. More in the Business Credit guide. This article is general information, not legal advice. For your own terms of trade or a specific situation, speak to a New Zealand lawyer.
Frequently Asked Questions
Can you refuse to sign a personal guarantee for a trade account?
Yes, but the supplier can then decline the account, lower the limit or ask for payment upfront. Refusing works best when you offer something else, such as a cap, a deposit or retention of title with a PPSR registration.
Can I cap a personal guarantee at a dollar amount?
You can ask. A cap equal to the credit limit is one of the most common requests that suppliers agree to. Make sure the cap is written into the signed document itself.
Can a supplier ask for a guarantee later, such as when I ask for a higher limit?
Yes. Suppliers often ask for a new or extended guarantee when you request a higher credit limit. Treat a limit increase as a fresh negotiation, and check whether your existing guarantee already covers the higher amount.
What do I say if the supplier says a guarantee is standard policy?
Ask who can approve exceptions, which is usually the credit manager rather than the counter. Offer a specific alternative, such as a cap, a review date or a deposit, instead of only asking them to remove it.
Is it worth paying a lawyer to look at a personal guarantee?
For a large credit limit, usually yes. A guarantee can put your own assets at risk, and a mistake about its meaning is not grounds for relief under section 25 of the Contract and Commercial Law Act 2017. A short review before you sign is cheap by comparison.
