Directors tell us the personal guarantee is the part of a loan offer they understand least and worry about most — and that nobody in the process ever really explained it. So here it is: what you’re committing to, what’s negotiable, and the questions worth asking before you sign anything.
Six things to know
What you’re actually signing
A personal guarantee (PG) is a legal promise that if your company can’t repay the loan, you will — personally. It bridges the gap limited liability creates: the company borrows, but you stand behind it. If the business repays as agreed, the guarantee is never called on and costs you nothing.
When lenders ask for one
Almost always on unsecured lending to limited companies — it’s the norm, not a red flag about your business. Asset finance sometimes needs one, sometimes not, because the asset itself is security. Invoice finance varies by lender. If you trade as a sole trader you’re already personally liable, so a PG adds nothing new.
What it typically covers
The guarantee usually covers the outstanding balance plus interest and recovery costs. Some are capped at a fixed sum or a percentage of the facility; others are unlimited. This is one of the most important lines in the document — and one of the most negotiable.
Joint and several — the two-director trap
Where two or more directors sign, guarantees are usually ‘joint and several’. That means the lender can pursue any one of you for the full amount, not just your share. If you have co-directors, this is a conversation to have before anyone signs, not after.
Your home isn’t automatically on the line
A standard PG is not a charge over your house. A lender calling on a guarantee pursues you for money; forcing a property sale is a separate, further legal process — and some guarantees are backed by a specific charge, which is a different document. Know which one you’re being asked to sign.
You can insure it
Personal guarantee insurance exists — policies typically cover a substantial portion of your liability if the guarantee is ever called. Premiums scale with the amount guaranteed. For directors taking larger facilities, it turns an open-ended personal risk into a fixed annual cost.