How to Remove Your Personal Guarantee — A Guide to Bank Negotiations at Succession

"I Can't Retire Because of My Personal Guarantee" — A Common Misconception

"I've personally guaranteed the company's bank loans, so there's no way I can sell the business."

This belief is widespread among SME owners — but in most cases, it's simply not accurate.

Releasing or transferring a personal guarantee in the context of business succession is achievable with the right process. This article explains how.

What Is a Personal Guarantee (Keieisha Hosho)?

A personal guarantee — more formally called a "management guarantee" in Japan — is an arrangement in which the business owner personally co-signs liability for the company's bank borrowings.

If the company cannot repay its loans, the bank has recourse against the owner's personal assets.

This has historically been standard practice in Japanese small business lending. Many owners have lived with personal guarantees for so long that they've come to view them as permanent — but they're not.

Three Ways Guarantees Are Handled at Succession

Option 1: The New Owner Assumes the Guarantee

The incoming owner (or buyer entity) agrees to step into your role as guarantor, releasing you from the obligation. The bank evaluates the creditworthiness of the new guarantor before agreeing.

This is the most common approach when a qualified buyer is involved.

Option 2: Repay the Loans at Closing

If part of the acquisition proceeds are used to repay outstanding loans in full, the guarantees are extinguished along with the debt.

Option 3: Use the Personal Guarantee Guidelines (Keieisha Hosho Guideline)

In 2014, Japan introduced formal guidance — the "Guidelines on Personal Guarantees by Business Owners" — that gives business owners a structured pathway to request guarantee release from their banks under certain conditions.

Conditions for Requesting Release Under the Guidelines

To request guarantee removal under the 2014 guidelines, the following conditions are generally relevant:

1. Clear separation between company and personal finances — company assets and your personal assets are kept distinct
2. Financial transparency — you provide regular financial reporting to the bank (annual statements, etc.)
3. Adequate financial health — the company maintains reasonable equity and debt service capacity

You don't need to satisfy every condition perfectly. But the closer you are to meeting them, the stronger your position in negotiations with the bank.

What Makes Bank Negotiations Succeed

Show the Bank a Concrete Succession Plan

Banks are most willing to engage when they understand who is taking over and what the company's financial position will look like afterward. Vague assurances don't move the needle. Specific plans do.

Negotiate After a Buyer Is Identified

Approaching a bank about releasing your guarantee before you have a buyer identified puts you in a weak position — the bank has no one to evaluate as a potential replacement guarantor. Waiting until a buyer is substantially confirmed makes the negotiation far more productive.

Bring Professional Support

Having a tax accountant or lawyer present at bank meetings makes a practical difference. It keeps the conversation professional and technical rather than emotional, and signals that the process is being managed properly.

"I Have a Personal Guarantee, Therefore I Can't Sell" Is a Belief Worth Challenging

A personal guarantee is not an insurmountable wall. It's one of several items that need to be worked through in the succession process.

Many owners who proceeded with succession while carrying personal guarantees found that the guarantee was resolved as part of the transaction. Some discovered — to genuine relief — that succession was the mechanism that finally freed them from a guarantee they'd been carrying for years.

Relay Partners' Experience

Relay Partners has navigated personal guarantee issues in prior transactions. We work with legal and tax professionals to support the negotiation process with banks. If a personal guarantee is one of your concerns, please raise it directly — it's a solvable problem.

Summary

• A personal guarantee does not automatically prevent succession
• Once a buyer is identified, the guarantee can be transferred, extinguished through repayment, or formally negotiated away
• Japan's Personal Guarantee Guidelines provide a structured pathway for this in certain circumstances
• Professional support in bank negotiations is strongly recommended