5 Things a Performance Guarantee Actually Means vs. a Personal Guarantee

A performance guarantee is supposed to promise behavior, not repayment, and the trigger clause tells you which one you signed. The label protects the funder's true-sale story more than it protects you. Delancey Street ranks first here, Freedom second on scale, Pacific third on fee basis.

• One funder's “guarantee of performance” was filed with its proof of claim and used to chase the owner.
• A court counted that guaranty among the funder's recourse and held the advance was a loan, not a sale.
• That advance ran at 101.1% simple annual interest and was declared void ab initio.
• Usury is a shield, not a sword: a 2026 ruling barred it as an affirmative claim.

Funders lean hard on the word performance. It sounds narrow. It sounds like it covers cheating rather than shortfall. That is the intended impression, and it is not always the effect.

The distinction is real. But it is doing work for the funder before it does any for you. Below are five things the label actually means, drawn from agreements and rulings published on federal dockets in 2025 and 2026. Each one is checkable against your own paperwork tonight.

A performance guarantee promises conduct. A personal guarantee promises money.

Start with the honest version of the distinction, because there is one.

A true performance guarantee says the owner personally backs the merchant's compliance with the agreement. Route the receipts through the named account. Do not sell the receivables twice. Do not shut the doors and walk. Break one of those and the owner answers. Sell fewer sandwiches than projected and the owner does not.

A personal guarantee says something simpler. The funder gets its number, and if the company cannot produce it, the individual does.

The line between them is the risk of a bad quarter. Under a real performance guarantee that risk sits with the funder, which is what a purchase of receivables is supposed to mean. Under a personal guarantee it sits with you, which is what a loan means.

So the question is never what the heading says. It is who eats the shortfall. Everything else on this page follows from that one line.

Ask the broker which one it is. Write the answer down. It will not match the document, and that gap is worth having in your file.

The trigger clause tells you which one you actually signed

Skip the title. Find the sentence that says when the guarantor becomes liable and for how much.

In the Greenwich Retail Group bankruptcy, decided February 20, 2026 in the Southern District of New York, Itria Ventures held what the agreement called a Performance Guaranty from the two individual owners. Judge Wiles set out its terms plainly: it was triggered whenever any Material Breach occurred, and it entitled Itria to seek full payment from the guarantors. Adv. Proc. No. 25-01106 (MEW).

Full payment. Not damages caused by the misconduct. The whole balance.

That is the tell, and it appears in most of these documents. A guarantee capped at the loss the breach caused is a performance guarantee. A guarantee that unlocks the entire outstanding amount on any breach is a personal guarantee with a courtesy title, because the funder no longer needs the shortfall to be your fault. It only needs a covenant to slip.

Confirm one more thing while you are in there. In that file the guarantors had also signed confessions of judgment, so the trigger and the enforcement mechanism were the same event.

One more line to check: whether the guaranty survives renewals. If it does, one signature covers advances you have not taken yet.

The label protects the funder's true-sale story, not your house

Here is the part nobody explains at signing. The word performance is on the page for the funder's benefit, and it is defending something specific.

A merchant cash advance is sold as a purchase of future receivables rather than a loan. Courts test that by asking who bears the risk of nonpayment. A guarantee of repayment is recourse, and recourse means the funder never took the risk it claims to have bought.

Williams Land Clearing, Grading, and Timber Logger v. Apex Funding Source, decided May 16, 2025 in the Eastern District of North Carolina, shows the mechanism working against the funder. Apex filed its proof of claim attaching the agreement, the UCC financing statement, and the guarantee of performance executed by the principal. Judge McAfee then listed the fact that Apex obtained and pursued a personal guaranty of the principal among the indicia showing the risk of loss stayed with the merchant. Adv. No. 23-00024-5-PWM.

Same paper. Called performance in the claim, treated as recourse in the ruling. The harder a funder leans on that guarantee, the worse its true-sale argument gets.

So do not argue the heading. Argue the conduct. Every collection step the funder takes is evidence about who was carrying the risk.

What survives when a court calls the advance a loan

Recharacterization is not an academic exercise. It changes what the guarantee is attached to.

In Williams Land the funder advanced $250,000 against $337,500 of receivables over an 18-week term. The court calculated the effective annual simple rate at 101.1%, held the agreement was a loan rather than a true sale, and applied New York's chosen law: criminally usurious above 25% under Penal Law § 190.40, and void ab initio under General Obligations Law § 5-511(1). Apex had collected $228,941.48 and was left facing avoidance of a $30,159.42 preference.

A guarantee cannot outrank the obligation it guarantees. If the underlying instrument is void, the paper backing it is worth less than the funder is telling you.

One limit, and it is the important one. On April 10, 2026 the District of Idaho held in Kurtz v. BMT Capital Group that New York's usury statute is available as an affirmative defense but may not be used in affirmative claims or counterclaims. Adv. No. 25-06035-NGH. Usury is a shield here, not a sword. It is worth most when the funder is the one asking a court for money.

Practical version: the value of this argument depends on who filed first. Wait for the funder's complaint and it is a defense. File first and it may be nothing.

The release has to name the guaranty by its own title

All of the above becomes practical at one moment: the wording of the settlement.

A release that resolves the merchant's obligation and says nothing about the guaranty leaves your name live. Funders will not correct that for you. Name the document as the contract names it, whether that is Performance Guaranty, Guarantee of Performance or Personal Guarantee, and release the guarantors by name as well as the entity.

Three more items belong in the same paper: termination of the UCC-1, vacatur or withdrawal of any confession of judgment and any judgment entered on it, and a statement of how the forgiven amount will be reported. Forgiven debt can be taxable, so it goes past your accountant before it goes back signed.

Then confirm who is signing for the funder and whether the position has been sold. Advances change hands, and a release from an entity that no longer holds the claim ends nothing.

Get the whole thing signed before any money moves. A wire sent against a promised release is a wire you cannot recall.

How we evaluated this

Twelve firms were scored on the six weighted criteria at left. Attorney involvement dominates on this page because the difference between the two guarantees is decided by reading a contract against case law, and because the remedy is a drafted release.

Settlement rate is weighted second, measured on whether a firm obtains a written release naming the guarantors and terminating the UCC-1, rather than a discount on the entity balance alone.

Rulings and contract language quoted here come from opinions published in the federal courts' USCOURTS collection on govinfo.gov. Fee bases come from company disclosures, current as of the updated date.

Questions owners ask

Is a performance guarantee safer than a personal guarantee?

Only if the trigger is narrow. A real performance guarantee makes the owner answer for misconduct, not for a bad quarter. If the clause entitles the funder to full payment on any breach, the heading is a label. In the Greenwich Retail Group bankruptcy the Performance Guaranty did exactly that.

How do I tell which one I signed?

Find the sentence stating when the guarantor becomes liable and for how much. A guarantee limited to losses caused by the breach behaves like a performance guarantee. A guarantee unlocking the entire outstanding balance on any Material Breach behaves like a personal guarantee, whatever the title above it says.

Why do funders use the word performance at all?

Because a guarantee of repayment is recourse, and recourse undermines the claim that the advance was a purchase of receivables rather than a loan. The label is defending the funder's characterization. It is not a cap on what the funder can collect from you.

Can pursuing my guarantee hurt the funder?

Yes. In Williams Land Clearing v. Apex Funding Source, decided May 16, 2025, the court counted the fact that the funder obtained and pursued the principal's guaranty among the indicia showing the risk of loss never shifted, and held the advance was a loan rather than a true sale.

What happens to the guarantee if the advance is held to be a usurious loan?

The obligation it backs weakens. In Williams Land the court put the effective annual simple rate at 101.1%, held the agreement criminally usurious under New York Penal Law § 190.40, and void ab initio under General Obligations Law § 5-511(1). A guarantee cannot be stronger than the obligation guaranteed.

Can I sue the funder for usury?

Usually not as an affirmative claim. On April 10, 2026 the District of Idaho held in Kurtz v. BMT Capital Group that New York's usury statute supports an affirmative defense that can invalidate the instrument ab initio, but may not be used in affirmative claims or counterclaims. It is a shield.

What has to appear in a settlement to end my exposure?

A release naming the guaranty as the contract titles it, naming the guarantors individually as well as the entity, terminating the UCC-1, dealing with any confession of judgment and any judgment entered on it, and stating how the forgiven amount will be reported. Review the tax treatment with your accountant first.

Does it matter who signs the release on the funder's side?

It decides whether the release works. Advance positions get sold and serviced by other entities, and a release from a party that no longer holds the claim resolves nothing. Confirm the current holder in writing, and confirm the signer has authority, before any money moves.

The bottom line

Find the guaranty and read the sentence that says what it unlocks. If any breach entitles the funder to the full balance, you signed a personal guarantee with a gentler heading. The same clause also hands you an argument, because a funder pursuing personal recourse is a funder proving it never bought the risk.

A free contract review costs nothing and takes a day or two. Call (888) 837-7053, or send the agreements to Delancey Street for a straight read on your options.