Personal Guarantees, What You Are Actually Signing and What It Means for You Personally

Most business loans require a personal guarantee. Here is what that means in practice, what your exposure is, and how to protect yourself.

What Is a Personal Guarantee?

A personal guarantee (PG) is a legally binding commitment by a company director or shareholder to personally repay a business debt if the company cannot. It bridges the gap between limited liability and the lender's need for security.

Most UK business loans, particularly unsecured ones, require a personal guarantee from at least one director. It is a standard part of commercial lending, not an unusual or aggressive request.

What Are You Actually Liable For?

A personal guarantee typically covers the outstanding loan balance plus any accrued interest and reasonable recovery costs. If the business defaults and cannot repay, the lender can pursue the guarantor personally for these amounts.

The guarantee is against your personal assets, not just business assets. In theory, this includes your home, savings, and other personal property. In practice, lenders will usually negotiate a repayment plan before pursuing asset seizure.

Capped Versus Unlimited Guarantees

Some personal guarantees are capped at a specific amount, for example 25 per cent of the loan balance. Others are unlimited, meaning the guarantor is liable for the full outstanding debt.

Always check whether the PG is capped. If a lender offers a capped guarantee, the exposure is defined and manageable. If it is unlimited, understand that your total personal exposure equals the full debt.

Joint and Several Liability

If multiple directors sign a personal guarantee, it is usually on a "joint and several" basis. This means the lender can pursue any one guarantor for the full amount, not just their proportional share.

If you and your business partner both sign and the lender cannot reach your partner, you could be liable for 100 per cent. Discuss this openly with co-directors before signing.

Personal Guarantee Insurance

Personal guarantee insurance (PGI) is available and covers a portion of your liability if the guarantee is called in. Policies typically cover 60 to 80 per cent of the guaranteed amount.

Premiums are based on the guarantee value, loan term, and your personal risk profile. It is worth considering for larger guarantees, particularly where the PG is unlimited.

How to Protect Yourself

Negotiate a cap if possible. Read the guarantee document carefully before signing. Understand the circumstances under which the guarantee can be called in. Keep personal assets protected where legally appropriate.

Most importantly, only borrow what the business can reasonably repay. A personal guarantee should be a formality, not a genuine risk. If the business cannot service the debt, the guarantee is the least of your problems.

Have questions about a personal guarantee you have been asked to sign? Talk to us before you commit.