Personal Guarantee Explainer

What is a personal guarantee?

In most SME lending, the director of the business and the personal guarantor are the same person. As a director of a limited company, you may be asked to guarantee the company's debt in your personal capacity. This means if the business cannot repay, the lender can pursue you personally, the limited liability protection of the company does not apply to the guaranteed amount.

This is standard practice in UK commercial lending. It is not unusual or a sign that the lender doubts your business, it is simply how most SME finance works.

Limited vs unlimited guarantees

A limited personal guarantee caps your personal liability at a fixed amount (e.g. £50,000 regardless of how much the company owes). An unlimited personal guarantee means you are personally liable for the full outstanding balance, interest, and recovery costs, with no ceiling. Always establish which you are being asked to sign.

Multiple directors

Where a company has more than one director, lenders typically ask all directors to sign jointly and severally. This means each director is individually liable for the full amount, not just their share. If one director cannot pay, the lender can pursue the others for the full balance.

When are they required?

Most term loans, revolving credit facilities, and property finance will require a PG. Under the Growth Guarantee Scheme, lenders cannot take a personal guarantee on facilities under £250,000. MCA is typically based on card sales and does not require a PG. Asset finance is secured against the asset itself.

What should you check before signing?

• •Is it limited or unlimited?
• •Does it survive company dissolution?
• •Are all directors signing jointly and severally?
• •Can the amount be negotiated down?
• •Is there a specific trigger for enforcement or can the lender call it at any time?

Can you avoid signing one?

Sometimes, particularly on smaller unsecured loans, MCA, and asset finance. Speak to your broker about whether a PG is required for your specific product and amount.