Your supplier wants a personal guarantee for a trade account. Read this before you sign

You’ve landed a job you can’t fund on cash alone, so you head to the timber yard, the electrical wholesaler or the building supplier to open a 30-day account. The person at the counter hands you a form and a pen. Two pages of boxes, then four pages of small print, and a signature line that says “Guarantor”.

Most owners sign it standing up. This guide is about why it’s worth taking it home to the kitchen table first.

What are you actually agreeing to?

When your business is a company, the company is the customer. The supplier knows a small company may have few assets of its own, so it asks the directors to stand behind the debt personally. That’s the guarantee. In plain terms: if the company doesn’t pay the supplier, you will.

That much most people expect. What catches owners out is everything else bundled in. Supplier forms are standard documents written by the supplier’s lawyers, and the clauses vary a lot. Here’s what to look for:

Clause	What it usually means for you
Guarantee and indemnity	You’re personally liable for the company’s debt to this supplier
“All moneys” or no stated limit	You’re covered for everything owed, not just the credit limit you asked for
Continuing guarantee	It keeps running until the supplier releases you, even after you resign
Joint and several	If there are two directors, the supplier can chase either of you for the whole amount
Charging clause	You give the supplier a charge over property you own, often with the right to lodge a caveat
Security interest over goods or property	The supplier may register an interest on the PPSR, sometimes over all of the company’s assets
Costs and collection fees	You pay the supplier’s legal and debt-collection costs if things go wrong
Credit check consent	You agree the supplier can look at your personal credit file as guarantor
Terms can change by notice	The supplier can update its terms later, sometimes just by publishing them

None of these is unusual on its own. Together, on an account you might use for a single job, they can add up to a much bigger personal promise than the purchase deserves.

Why does the “charging clause” matter so much?

This is the one to slow down for. A charging clause typically says that you, as guarantor, charge any land you own now or in future in favour of the supplier, and agree that they can lodge a caveat to protect that charge.

In practice that can mean a supplier you owe a few thousand dollars to has a claim it can note on the title of your family home. A caveat doesn’t sell your house. But it can hold up a sale or a refinance until it’s dealt with, and it tells every other lender that someone else says they have an interest in your property.

For couples, there’s an extra wrinkle. If the home is in joint names and only one of you signs, the clause generally reaches only the signer’s share. That’s still enough to complicate a refinance. If your partner isn’t a director, be very careful about them signing anything on the form. Our page on a home in joint names when the business is yours walks through how lenders see that split.

We talk to owners every week who didn’t know their home was mentioned in a trade account they opened years ago. It’s worth checking now, while nothing is wrong.

What can you ask a supplier to change?

More than most people think. A supplier wants your business, and the person at the counter usually isn’t the one who decides. Ask for the credit manager and put your requests in writing. Common changes suppliers agree to:

1. Cap the guarantee. Limit your personal liability to the credit limit plus a set margin, rather than “all moneys”.
2. Delete the charging clause. Many suppliers will strike it for a modest limit, especially if you have a clean payment history elsewhere.
3. Require your consent before limit increases. That way the guarantee can’t quietly grow as the account does.
4. Add a release clause. Your guarantee ends for future purchases once you give notice and stop being a director.
5. Remove “terms change by notice”. Or at least require that changes to the guarantee itself need your signature.
6. Cap collection costs. Limit them to reasonable costs actually incurred.

Cross out and initial the changes on both copies, have the supplier countersign, and keep a copy. If the supplier won’t budge on the charging clause, that’s useful information too. A smaller account, cash-on-delivery or paying by card might be the better trade.

If you’re working out how to fund materials for a bigger job without putting the house behind every supplier, a quick enquiry gets you a conversation with one specialist about a business-purpose option instead.

Do the unfair contract terms laws help?

Sometimes. Under the Australian Consumer Law, small businesses are protected from unfair terms in “take it or leave it” standard form contracts, and since 9 November 2023 businesses can be penalised for using them. For contracts made or renewed from that date, business.gov.au says the protection covers businesses with “100 or fewer employees” or “an annual turnover of less than $10 million”.

A supplier credit application is often exactly that kind of standard form. But there are limits worth knowing:

• Only a court can decide. As business.gov.au puts it, “Only a court can find a contract term unfair.” Until then, the clause stands.
• Negotiated terms aren’t covered. If you and the supplier genuinely bargained over a clause, the protection may not apply.
• The guarantee itself may be fair. Asking a director to guarantee a company’s account is a normal commercial practice. It’s the extreme versions, such as unlimited reach and charges over everything, that are more likely to be questioned.

If you’re already in a dispute with a supplier over its terms, the Australian Small Business and Family Enterprise Ombudsman lists “contract and payment disputes” among the matters it can help with or refer on. In NSW, SA, Victoria and WA, your state’s small business commissioner is usually the first call.

The better protection is cheaper: read before you sign, and negotiate then.

I’m a sole trader. Does any of this apply to me?

Partly. As a sole trader, you and the business are legally the same person, so you’re already personally liable for the account. A separate guarantee adds little.

But the rest of the form still matters. A charging clause in a sole trader’s credit application can reach your property just the same. Collection costs and credit check consents apply too. If you later set up a company, the supplier will usually ask you to sign a new application and guarantee for it, so that’s another chance to read the terms properly.

If you’re weighing whether to move from sole trader to company partly for this kind of protection, our personal or business comparison tool sets the differences out side by side. Talk to your accountant about the structure itself.

Keep a guarantee register

Here’s a habit that takes 20 minutes and pays off for years. Make a one-page list of every guarantee you’ve signed:

• the supplier, landlord or lender
• the date you signed and the entity you guaranteed
• the credit limit, and whether your guarantee is capped
• whether there’s a charging clause over property
• what you need to do to be released

Lenders ask about contingent liabilities, and “I’m not sure, maybe four or five trade accounts” isn’t a great answer. Some lenders also search the Personal Property Securities Register (PPSR) for registrations against your company. You can do the same with a PPSR organisation search, so you see what they’ll see before you apply.

The register also matters when you leave. A trade account guarantee usually keeps running after you resign or sell. Our guide to getting released from a personal guarantee covers how releases work, and the same steps apply to suppliers: close or transfer the account, ask for a written release, and don’t assume a resignation letter does the job.

A worked example

Illustrative only. A couple run a joinery business through a company, with both as directors. To win a kitchen fit-out contract, they need a $30k account with a timber supplier. The application includes an unlimited guarantee, a charging clause over any land either director owns, and a clause allowing the supplier to raise the limit on request.

Before signing, they ask the supplier’s credit manager to cap each guarantee at $35k, strike the charging clause and require both directors to agree in writing to any limit increase. The supplier agrees to the cap and the consent rule, and strikes the charge in return for a 12-month review of the account. They initial the changes, file a copy, and add the account to their guarantee register.

Two years later, when they refinance the home loan, there’s nothing on the title they didn’t expect.

The numbers are made up, but the conversation is a real one, and it usually takes a single phone call.

How does this connect to borrowing?

Trade accounts are a form of finance, even if they don’t feel like one. They’re often the first credit a new company has, and the guarantees you sign for them sit alongside any loan guarantee you give later. Our page on personal guarantees on business loans explains how a lender’s guarantee differs, and why a lender may ask what other guarantees you’ve already given.

For one-director companies in particular, every guarantee lands on the same person. Business loans for a one-director company covers how lenders look at that. And if your home is already exposed to several creditors, protecting the family home is worth reading before you add another.

Before you sign the next one: see what fits

Supplier credit is useful. But if the only way to get materials is to put the family home behind another unlimited guarantee, it’s worth asking whether there’s a cleaner way to fund the job. Sometimes that’s a properly structured business loan or line of credit that lets you pay suppliers on shorter terms. Sometimes it’s simply a smaller account. And sometimes a loan isn’t the answer at all, and we’ll tell you so.

Our enquiry takes about 60 seconds, and there’s no credit check when you first enquire. Your details aren’t sent to a pile of lenders, so your phone won’t start ringing with strangers. A real person reads what you’ve written about your business, your home and the guarantees you’ve already signed, and then calls you to talk it through. Please fill the form in accurately, including any existing guarantees and debts, so we can match you with the right option the first time.

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