Definition
A personal guarantee makes an individual, often a director or owner, answerable for a business debt should the business fail to pay it. It makes the guarantor personally liable, potentially putting their own assets at risk. Most small business loans require one. Some are capped at a figure while others have no ceiling, and the scope can be a single facility or everything the business owes that lender.
The personal guarantee is the clause that turns a business debt into a personal one, and it appears in most small business loans.
Why lenders ask for it
A company’s debts are legally separate from its owners’. It lets the lender look past the company to the individuals who run it. For unsecured lending, it is often the lender’s main protection.
What to check
- Does it cover this loan only, or all present and future debts?
- Is it limited to an amount?
- Is it secured by your property?
- Are other people signing, and could the lender pursue just you for the full amount?
Our guide to personal guarantees covers each in detail.
Get advice
Independent legal advice is wise, especially for family members asked to guarantee. If you want to understand options for your business, make one enquiry.
Common questions
Can I negotiate a personal guarantee?
Sometimes. You can ask for it to be limited to an amount or to a specific facility, or offer specific security instead.
Does a guarantee end when I resign as director?
Not automatically. It usually continues until the lender formally releases it.
Sources and further reading