Personal guarantees on business loans, explained

A personal guarantee is a legal promise that if your company cannot repay its borrowing, you will repay it personally. It sits outside the protection of the limited company: sign one, and that particular debt can follow you as an individual, into your personal savings and assets, even though the borrower on paper is the business.

Most unsecured lending to small UK companies comes with a personal guarantee requirement, so the practical question for most directors is not how to avoid one entirely, but how to understand and limit what they are signing.

What can a lender actually do under a personal guarantee?

If the company defaults and the lender calls the guarantee, the guarantor owes the outstanding amount personally. From there the lender has the same routes as with any personal debt: demand, negotiation, county court proceedings, and enforcement of a judgment. Where the guarantee is supported by a charge over property, the property itself can be at risk; where it is unsupported, the lender is pursuing you as an unsecured creditor, which still means court action and potentially bankruptcy proceedings for large sums.

The guarantee usually survives things directors assume would end it. Selling the company does not release you unless the lender agrees a release in writing. Resigning as a director does not release you either. The document, not your role at the company, decides when your liability ends.

What should I check before signing?

Guarantee documents vary between lenders, and several points are worth confirming in writing before signature. Independent legal advice is sensible for any large commitment, and some lenders require evidence of it.

• Is the guarantee capped at a fixed amount, or unlimited? Some lenders will agree a cap; an uncapped guarantee covers whatever the debt grows to, including interest and recovery costs.
• If more than one director signs, is liability "joint and several"? It usually is, which means the lender can pursue any one guarantor for the full amount, not just their share.
• Does it cover only this facility, or is it an "all monies" guarantee covering anything the company ever owes this lender?
• What exactly triggers a demand, and what notice do you get?
• How do you get released: on repayment, on refinance, on sale of the business?

How to read a percentage guarantee

A 25% guarantee on a £400,000 facility is £100,000 of personal exposure, plus interest and costs where the deed says so, and it does not shrink as the loan is repaid unless the deed says that too. Read the cap, read whether it is capped at all, and read whether costs sit inside or outside the cap. Those three lines matter more than the headline percentage.

Whether you own a home changes the shape of the question rather than removing it. Some unsecured and invoice lenders will proceed without a homeowning director, and criteria vary from lender to lender. A guarantee from someone with no property behind it is still an enforceable debt against their income and savings. It is not a formality because the guarantor rents.

Size changes who is asking, too. The larger the facility, the more likely a guarantee is joint and several across every director rather than sitting with one.

We do not tell anyone whether to sign one. What we do is put each lender’s guarantee terms side by side with its pricing before an offer is accepted, so the two can be read together. Take independent legal advice on any deed before signing it; the lender still makes its own decision on the lending.

Which lending shapes usually come without a personal guarantee?

Three shapes of lending look first to something other than the director, and it is the structure of the product rather than any lender’s generosity that does the work. Invoice finance releases a percentage of each approved invoice, so the debtor’s ability to pay is the primary security. Asset finance is secured on the vehicle or machine being bought, which the funder can repossess and sell. Lending secured by a first charge on property has the property to fall back on. In each case a guarantee can still be asked for, often limited to a warranty that the invoices are genuine or to a shortfall on resale of the asset.

Lenders rarely publish whether a guarantee is a fixed requirement, so there is no reliable count of guarantee-free lenders, and each lender decides case by case.

Capped or uncapped, with a worked example

Take a £150,000 unsecured loan over four years with two directors. An uncapped guarantee makes each director liable for whatever the company owes on the day of demand: the balance, arrears of interest, default interest where the agreement charges it, and the lender’s recovery costs. If the company fails in month 18 with £98,000 outstanding and £7,000 of default interest and costs, the demand is £105,000.

A guarantee capped at £75,000 limits the demand to £75,000 whatever the balance, unless the deed puts interest and costs outside the cap, which some do, so that line is the one to read twice. A cap is normally a fixed sum agreed at drawdown rather than a percentage that tracks the balance down. Whether a cap is offered at all is the lender’s decision, and on smaller unsecured facilities the deed is usually a standard form that is not negotiated.

What does a joint and several guarantee of £350,000 mean?

Suppose three directors each sign a joint and several guarantee of £350,000 for the same facility. Jointly, all three together owe the lender £350,000. Severally, each of them alone owes the lender £350,000. The lender chooses whom to pursue and is free to demand the full sum from the director with the most reachable assets while never approaching the other two.

That director then has a right of contribution against the co-guarantors, £116,667 each on an equal split, but recovering it is a separate claim at their own cost against people who may by then have little. A several-only guarantee, where each signatory is liable for a stated share, is a different document, and a side agreement between the three directors binds them to each other without touching the lender’s rights.

Are there personal guarantee loopholes?

None that survive contact with a court. A signed guarantee is a contract, and resigning, selling the shares, moving assets to a spouse or liquidating the company all leave it intact. Transfers made to put assets beyond a creditor’s reach can be unwound under section 423 of the Insolvency Act 1986, whether or not the transferor is insolvent at the time.

What does limit exposure is written into the deed before signature: a cap, a several rather than joint and several basis, a release on refinance or sale, and a time limit. After signature, the position is the one the first section on this page describes.

Secured lending, and what it does to the guarantee

Secured lending changes the shape of the risk rather than removing it: a loan secured on a specific business asset may come with a smaller guarantee, or one limited to a shortfall, because the lender looks to the asset first. Whether that trade is preferable depends on the asset and the circumstances, and is a decision to take with your own legal and financial advisers.

Do all lenders require one?

Requirements differ by product and lender. Unsecured term loans to small limited companies usually require a guarantee from at least one director. Asset finance sometimes relies mainly on the financed asset. When comparing offers, the guarantee terms belong in the comparison alongside the cost: a cheaper facility with a broader guarantee is not automatically the better deal for the person signing it.

Frequently asked questions

Related pages

• Personal guarantees: our full guide
• Business loans
• Asset finance
• Business funding glossary

Sources

The worked examples are illustrations, checked 8 September 2026.

1. Insolvency Act 1986, section 423: transactions defrauding creditors