Understanding Personal Guarantees on Business Loans

If you’ve applied for a business loan in the UK, you’ve likely come across the term personal guarantee.

This guide explains what a personal guarantee is, when lenders require one, what you’re putting at risk, and the practical steps you can take to protect yourself. Whether you’re exploring business finance for the first time or reviewing an existing agreement, this is designed to give you clarity.

 

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What Is a Personal Guarantee?

A personal guarantee (PG) is a legally binding agreement stating that if your business cannot repay a loan, you will repay it personally.

For directors of a limited company, this is particularly important. Limited companies are designed to protect you through limited liability, meaning your personal assets are separate from the business. Signing a personal guarantee effectively removes that protection for the specific borrowing.

Why Personal Guarantees Are Now Standard

Personal guarantees are now a core part of SME lending in the UK, particularly where risk is higher or security is limited.

• Demand for PG-backed lending has increased significantly in recent years
• Start-ups and early-stage businesses are increasingly required to provide guarantees
• More directors are exploring Personal Guarantee Insurance (PGI) as a result

In short, personal guarantees are no longer the exception, they are often the norm.

Types of Personal Guarantee

Not all personal guarantees carry the same level of risk. Understanding the structure is key to assessing your exposure.

Unlimited Personal Guarantee

You are liable for the full outstanding debt, including interest, fees, and recovery costs.

Limited Personal Guarantee

Your liability is capped at a fixed amount or percentage (e.g. 20% of the facility). More common in asset finance agreements where the equipment holds residual value.
 

‘All Monies’ Clause

Extends the guarantee beyond a single facility to cover all current and future borrowing with the same lender. For example, you guarantee a £50,000 loan today. Later, your bank provides a £15,000 overdraft facility. Because of an all-monies clause, your personal guarantee now covers both.

Joint & Several Liability

Where multiple directors sign, each individual can be pursued by the lender for the full amount, not just their share.

When Do Lenders Require a Personal Guarantee?

Lenders typically request a personal guarantee when the business alone does not provide sufficient security. Common scenarios include:

• Unsecured business loans (where no business asset is pledged as collateral)
• Start-up or early-stage businesses with limited trading history
• Asset leasing and hire-purchase arrangements
• Commercial mortgages
• Trade credit facilities with suppliers
• Invoice finance agreements
• Business overdrafts
  
  

Why This Matters

Lending criteria has tightened in recent years, with lower approval rates from traditional banks. At the same time, alternative lenders now account for over 60% of all SME funding, many of whom require a personal guarantee as standard.

For many businesses, a personal guarantee is what makes a funding application viable.

What Are the Risks?

Signing a personal guarantee creates a direct link between your business borrowing and your personal financial position.

A key point: lenders may not need to exhaust business assets before pursuing you personally. Enforcement can begin when a defined “trigger event” occurs.

Your Home

A lender may apply for a charging order against your property. While this does not automatically mean a forced sale, it can lead to further legal action to recover the debt.

The Enforcement Process

If a guarantee is called upon, the process may include:

• Formal demand for repayment
• Statutory demand (typically 21 days to respond)
• County Court Judgment (CCJ)
• Enforcement action (e.g. bailiffs, charging orders)
• Potential bankruptcy proceedings (for larger debts)

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Personal Bankruptcy

If repayment is not possible, bankruptcy may follow. This can result in:

• Disqualification from acting as a company director
• Loss of personal assets
• Long-term impact on your credit profile
   

Credit Impact

A personal guarantee does not appear on your credit file unless enforced. However, outcomes such as CCJs or bankruptcy can have a significant and lasting effect.

Benefits of a Personal Guarantee

While the risks are real, a personal guarantee can also play a practical role in accessing and structuring finance.

Improved Access to Funding

Particularly for start-ups or businesses without strong balance sheets.

Potentially Better Terms

Including higher limits or more competitive rates.
 

Enabling Growth

Supporting investment, acquisitions, or working capital when other options are limited.

Used carefully, a personal guarantee can be part of a wider business finance strategy.

Before You Sign: A Practical Checklist

Before agreeing to any personal guarantee, it’s important to understand exactly what you’re committing to.

These points are for general information only. Charles & Dean does not provide financial or legal advice - please seek independent professional advice before proceeding.

Ask Yourself:

Independent Legal Advice (ILA)

Some lenders require Independent Legal Advice before a personal guarantee is signed. This involves a solicitor, independent from the lender, confirming that you understand:

• The legal implications of the agreement
• When and how the guarantee can be enforced
• The extent of your personal liability

This step is designed to ensure transparency, not to provide financial advice.

Alternatives to a Personal Guarantee

Depending on your circumstances, there may be ways to structure funding without (or with reduced reliance on) a PG.
 

Asset-Backed Finance

Using equipment, vehicles, or machinery as security.

Invoice Finance

Leveraging unpaid invoices to release working capital.

Government-Backed Schemes

Such as the Growth Guarantee Scheme, which may reduce the need for personal guarantees in some cases.

Each option depends on your business profile, sector, and funding requirement.

How Charles & Dean Can Help

Charles & Dean is a commercial finance broker, not a lender. That means the focus is on helping you explore and structure the right funding options for your business, whether that involves a personal guarantee or not.

We work with a wide panel of lenders across the UK to support:

• Business loans
• Asset finance
• Invoice finance
• Growth and acquisition funding

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Charles & Dean is a credit broker, not a lender. We do not provide financial advice. All funding is subject to status and approval, and it’s important to consider your wider financial position before entering into any agreement.

Tom Perkins

Director & Co-Founder of Charles & Dean

For over ten years, Tom has been a noteworthy leader in the asset finance space, delivering talks and sharing knowledge across a plethora of platforms. We know him to be an influential figure when it comes to disrupting outdated trends and driving finance for SMEs across the UK. His ever-present dynamism permeates even the farthest branches of the Charles & Dean community, inspiring our endeavour to provide unique, tailored solutions.