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?
Can the risk be reduced?
Some options exist, with trade-offs. Personal guarantee insurance is a commercial product that covers a portion of a guarantor’s liability if the guarantee is called; cover levels, exclusions and premiums vary, and it is worth reading the policy terms as carefully as the guarantee itself. Negotiating a cap, or a guarantee that steps down as the balance reduces, is sometimes possible, particularly on larger facilities where terms are individually negotiated.
Secured lending changes the shape of the risk rather than removing it: a loan secured on a specific business asset may come without a personal guarantee, or with a smaller one, 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. Merchant cash advance agreements commonly include one as well, though practices differ between providers on scope and wording. 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
What happens if my company cannot pay and I have signed a personal guarantee?
The lender can demand the outstanding amount from you personally. If it is not paid or renegotiated, the lender can take court action against you as an individual and enforce any judgment, and for large debts bankruptcy proceedings are possible. Where property was charged in support of the guarantee, that property can be at risk. The exact position depends on the wording of the guarantee you signed.
Does selling my company or resigning as director end my personal guarantee?
No, not by itself. A personal guarantee is a contract between you and the lender, and it continues until the debt is repaid or the lender releases you in writing. Anyone selling a business with outstanding guaranteed borrowing should deal with the release as part of the sale.
What does joint and several liability mean on a personal guarantee?
Where two or more people guarantee the same debt jointly and severally, the lender can pursue any one of them for the full amount rather than splitting it. Recovering contributions from co-guarantors is then that person’s problem, not the lender’s.
Can I get business funding without a personal guarantee?
Sometimes, depending on the product. Lending secured on a specific asset or on invoices may not need one, or may need a smaller one. Most unsecured lending to small UK limited companies does require a guarantee from at least one director. Where a guarantee is required, points like a cap on the amount are sometimes negotiable.
Is CapExpand FCA regulated?
No. CapExpand Ltd is not authorised by the Financial Conduct Authority and only completes non-regulated introductions, which is why we currently work with limited companies and LLPs for business purposes rather than sole traders or partnerships.
Comparing offers with different guarantee terms?
We set out the guarantee position alongside the cost for every introduction, in writing.
Important information
CapExpand Ltd is not authorised by the Financial Conduct Authority and can only complete non-regulated introductions. We work with UK limited companies and LLPs only, for business and commercial purposes. We are not a lender and we do not provide financial, tax or legal advice. We work with a panel of lenders whose particulars are available on request, and we receive commission from the lender if a deal completes, at no cost to you. All lending is subject to status, valuation where applicable and the lender's own checks.
Registered office: Pure Offices, Lake View Drive, Annesley, Nottingham, NG15 0DT. Company No. 14433858.