What is a personal guarantee on a business loan?

It is a legally binding promise by a director or owner to repay the loan personally if the business defaults or becomes insolvent. The company is still the borrower, but the lender can pursue the guarantor's personal assets if the company does not pay. The British Business Bank says lenders usually require one for unsecured business loans.

What is a personal guarantee document?

It is a separate legal document, signed by you as an individual, that sits alongside the company's loan agreement. It names the guarantor and the lender, says which debts are covered, sets any cap and explains when the lender can demand payment. Some lenders require it to be witnessed by a solicitor who confirms in writing that its implications were explained to you.

What is a personal guarantee on a business line of credit?

It works as it does on a loan, except that the amount owed moves. On an overdraft, a revolving credit facility or an invoice finance facility, the guarantee usually covers whatever the company owes when the lender calls on it, up to any cap. Check whether the cap matches the facility limit and what happens if the limit is raised later.

Can I lose my home if I sign a personal guarantee?

It is possible. If the guarantee is supported by a charge over your home, the lender can enforce the charge and the property can be repossessed if the debt is not paid. Without a charge the lender would have to go through the courts, but the British Business Bank's guidance says a guarantor's home, savings and other personal assets can be used to settle the business debt.

Does signing a personal guarantee affect my credit score?

Signing one does not in itself affect your credit score, according to the British Business Bank. If the business defaults and you then miss payments you are asked to make personally, your credit record could be damaged. A lender may also run a credit search on you before accepting you as a guarantor.

Can I get out of a personal guarantee?

Only once the debt is repaid or the lender agrees to release you, which should be confirmed in writing. The British Business Bank suggests negotiating an end date before you sign and says a lender may reduce or release a guarantee once repayments have been made reliably. Resigning as a director or selling your shares does not normally end it, so ask for a release when you leave or when the loan is refinanced.

Personal guarantees explained: what directors are signing

A personal guarantee is a legally binding promise, made by you as an individual, to repay a lender if your company does not. The company remains the borrower, but if it defaults or becomes insolvent the lender can turn to you, and to your personal assets, for the money. If you are a director, or a landlord borrowing through a limited company (an SPV), and a lender has asked you to sign one, treat the debt as one you may have to repay yourself.

When lenders ask for a personal guarantee

A company's debts normally stay with the company. A guarantee is how a lender reaches past the company to the people behind it. The British Business Bank says lenders usually require one for unsecured business loans, may want more than one guarantee for larger loans, and may ask for it to cover the full loan or as little as 20% of it.

You are most likely to be asked for one on:

unsecured business loans, where no asset is charged and the guarantee is the lender's main fallback;
limited company buy-to-let, where the mortgage is in the company's name and lenders often ask the directors to stand behind it;
bridging loans and development finance to a company, where a guarantee is often taken to cover any shortfall if the sale or refinance does not clear the loan;
invoice finance, where directors are often asked for a guarantee or an indemnity;
a commercial mortgage for a young company with little trading history.

If you borrow in your own name, as a sole trader or an individual landlord, there is nothing to guarantee. You are already personally liable.

Types of personal guarantee

Three terms decide how much you could owe and how the lender can collect it.

Limited or unlimited

A limited guarantee caps what you can be asked to pay, at a fixed sum or a share of the debt. Interest and the lender's recovery costs may be added on top, so check the wording. An unlimited guarantee has no cap. You stand behind everything the company owes that lender, which can include borrowing it takes on later.

Joint and several: when more than one director signs

Where several directors sign, liability is usually joint and several. Each of you is liable for the whole amount, not a share that matches your shareholding. The lender can pursue whoever is easiest to collect from, and it is then for that person to seek a contribution from the others.

Supported or unsupported

An unsupported guarantee is a promise with no asset attached. To enforce it the lender has to go through the courts, but your home and savings are still at risk that way. A supported guarantee is backed by security, usually a legal charge over your home or another property. The charge gives the lender a direct claim on that property, which can be repossessed and sold if the guarantee is called on and not paid. Anyone who owns the property with you will normally have to sign as well, and should take their own advice.

What happens if the company cannot repay

The company misses payments or breaks the loan terms. Talk to the lender early: a revised schedule is sometimes possible.
The lender demands repayment from the company and enforces any security it holds over the company's assets, such as a charge over a property.
The lender makes a written demand on the guarantors for what is still owed, up to any cap. Many guarantees allow this before recovery from the company is finished.
You pay, or agree how you will pay. If you do not, the lender can take court action. The British Business Bank's guidance says a guarantor's home, car, savings and investments can be used to settle the debt.
If your assets do not cover the debt, you may be made bankrupt. A person subject to bankruptcy restrictions or a Debt Relief Order cannot act as a company director.

The exact order depends on the wording of the document. If you believe a lender has treated you unfairly, the Financial Ombudsman Service says it can help people acting as personal guarantors for loans to businesses they are involved in, subject to its rules.

What a guarantee does not do

It does not replace the company's duty to repay. The company is still the borrower.
It does not end when you resign as a director or sell your shares. It normally runs until the debt is repaid or the lender releases you in writing.
It does not stop at your share of the business where liability is joint and several.
Signing it does not in itself affect your credit score, the British Business Bank says, although missing personal payments after a default could.

What the British Business Bank's guidance says

The British Business Bank publishes a guide to personal guarantees for business borrowing. Two of its points are worth acting on before you sign. Some guarantees run for the whole loan term, so it suggests negotiating an earlier end date, and it notes that a lender may reduce or release a guarantee once repayments have been made reliably. Many lenders also require independent legal advice first, and some want the guarantee witnessed by a solicitor who confirms in writing that its implications were explained.

Government-backed loans and personal guarantees

The name of the Growth Guarantee Scheme can mislead: the guarantee is for the lender, not for you. The scheme's 70% government-backed guarantee covers the lender's outstanding balance after it has completed its normal recovery process, and the borrower stays liable for 100% of the debt. Lenders may still take personal guarantees under the scheme, in line with their usual practice, but a principal private residence cannot be taken as security. That rule limits the security a lender can take. It does not mean a guarantor has nothing to lose, so ask the lender how a guarantee would be enforced. The scheme was open through accredited lenders when checked on 2 October 2026. Its terms change, so read the official page.

Take independent legal advice

We arrange finance. We do not give legal advice, and nothing here is advice on your document. A solicitor acting for you, not for the lender or the company, should review the guarantee before you sign and explain what it covers, how it can be enforced and how it ends. Lenders often insist on this anyway.

Personal guarantee insurance

Personal guarantee insurance is a product sold to directors: in return for a premium, a policy can pay part of what a guarantor owes if a lender calls on a guarantee, subject to its limits and exclusions. It is mentioned so that you know it exists, not as a recommendation.

Questions to ask before you sign

Is the guarantee limited or unlimited, and what is the cap?
Are interest and the lender's costs inside the cap or on top of it?
Does it cover this loan only, or everything the company owes the lender now and later?
Is it supported by a charge over my home or any other property?
Who else is signing, and is liability joint and several?
Must the lender pursue the company and its assets first?
When does it end, and will the lender reduce or release it as the loan is repaid?
What happens if I leave the company or sell my shares?
Does the lender require independent legal advice, and who pays for it?

Guarantees by type of borrowing

Type of borrowing	Is a guarantee usual?	What else secures the loan
Unsecured business loan	Usually	Nothing is charged, so the guarantee is the lender's main fallback
Limited company buy-to-let	Often, depending on the lender	A charge over the rental property
Bridging loan to a company	Often	A charge over the property
Development finance to a company	Often	A charge over the site and, in many cases, the company's other assets
Invoice finance	Often, as a guarantee or indemnity	The invoices, which the provider normally buys
Commercial mortgage	More likely for a young company	A charge over the premises
Loan in your own name	Not needed	You are already personally liable

The table shows common practice, not a rule. Each lender sets its own requirements.

What to do next

Read the document, ask the questions above and have a solicitor review it before you sign. If you are still choosing how to borrow, our guide to business loans compares secured and unsecured routes, and the business loan calculator shows the monthly repayment and total cost the company would be taking on. Tell us at the start of an enquiry if you want to limit or avoid a guarantee, and we will say which types of lender are likely to ask for one.

Personal guarantees explained: what you are signing and what it can cost you

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