A Canadian Personal Guarantee for a Loan is a legal document in which an individual (the guarantor) personally promises to repay a borrower's loan obligations if the borrower (the principal debtor) defaults. This creates a secondary obligation — the guarantor's liability is triggered only when the principal debtor fails to perform. Under Canadian law, personal guarantees are governed by provincial common law suretyship principles, the applicable provincial Mercantile Law Amendment Act, and the Statute of Frauds.

Provincial Statute of Frauds legislation in most Canadian provinces requires that a guarantee be in writing and signed by the guarantor to be enforceable. In Ontario, this requirement is found in section 4 of the Statute of Frauds (R.S.O. 1990, c. S.19). British Columbia's Law and Equity Act (R.S.B.C. 1996, c. 253, s. 59) maintains a similar writing requirement. Alberta provides additional protections through the Guarantees Acknowledgment Act (R.S.A. 2000, c. G-11), which requires a notarial certificate before an individual's guarantee is enforceable.

The Mercantile Law Amendment Act, enacted in Ontario (R.S.O. 1990, c. M.10) and other provinces, modifies the common law rule that the release of one co-surety discharges all co-sureties. Under the Act, a guarantor who pays the guaranteed debt is entitled to an assignment of the creditor's security interests, preserving the guarantor's right of subrogation against the debtor.

The Personal Property Security Act (PPSA), enacted in all common law provinces, interacts with personal guarantees where the creditor holds a registered security interest in the debtor's personal property. Creditors must maintain their PPSA registrations and refrain from impairing collateral to preserve the full enforceability of the guarantee. Under the Bankruptcy and Insolvency Act (R.S.C. 1985, c. B-3), a guarantor's liability survives the debtor's discharge from bankruptcy, making personal guarantees a critical tool for creditor protection.

Personal guarantees for loans are routinely required by Canadian chartered banks (the Big Five and others), credit unions, and alternative lenders when extending credit to corporations, partnerships, and other limited liability entities. The Business Development Bank of Canada (BDC) and Canada Small Business Financing Program (CSBFP) loans frequently require personal guarantees from significant shareholders or directors of the borrowing entity.

Commercial landlords across all provinces require personal guarantees when leasing to newly incorporated companies or entities without established credit. Franchise operations governed by provincial franchise legislation (such as Ontario's Arthur Wishart Act, S.O. 2000, c. 3) commonly require personal guarantees from franchisee principals. Trade creditors and suppliers rely on personal guarantees when extending significant trade credit to business customers.

In real estate development financing, lenders require personal guarantees from the principals of development corporations, particularly for construction loans and mezzanine financing. Agricultural lending through Farm Credit Canada (FCC) may also involve personal guarantees from farm operators who borrow through corporate or partnership structures.

The Canada Revenue Agency (CRA) may have implications for guarantors under the Income Tax Act. If a shareholder guarantees a corporation's debt without adequate consideration, the CRA may assess a taxable shareholder benefit under section 15(1). Conversely, if a guarantor pays under a guarantee and cannot recover from the debtor, the loss may be deductible under section 9 or 20(1)(p) if the guarantee was given in the ordinary course of business. Professional tax and legal advice should be obtained before providing a personal guarantee.

The parties section must clearly identify the guarantor, creditor, and principal debtor with full legal names, addresses, and entity types. For corporate debtors, the agreement should reference whether the entity is incorporated under the Canada Business Corporations Act (CBCA) or a provincial business corporations act. Individual guarantors must acknowledge understanding the full extent of their personal liability.

The scope of guarantee defines whether the guarantee is unlimited or limited to a specified maximum amount in Canadian dollars. The document should specify whether it covers principal only or extends to interest, fees, legal costs, and collection expenses. The continuing guarantee provision determines whether the guarantee covers future advances and modifications or is limited to the specific loan transaction described in the recitals.

The waiver of suretyship defenses must be carefully drafted to comply with provincial law. The guarantor should waive the right of discussion (requiring the creditor to proceed first against the debtor), defenses based on modification of the underlying obligation, defenses arising from impairment of collateral, and defenses based on the release of co-guarantors. The Mercantile Law Amendment Act provisions in Ontario and other provinces must be specifically addressed.

The independent legal advice clause should reference the Alberta Guarantees Acknowledgment Act requirements where applicable and confirm that the guarantor has received or been offered independent advice. The PPSA acknowledgment section should address registration requirements and the guarantor's obligation to cooperate with further documentation. The governing law clause should identify the applicable province and reference both provincial and federal laws of Canada. The interest rate provisions must comply with section 347 of the Criminal Code, which prohibits charging interest in excess of 60% per annum.