A personal guarantee is a legal commitment by an individual (typically a company director or owner) to repay a business loan if the borrowing company cannot. It makes the individual personally liable for the debt, which means their personal assets â including property â can be pursued by the lender in the event of default.
What It Means in Practice
When a limited company borrows money, the company’s liability is normally limited to the company’s assets. A personal guarantee removes that limit for the guarantor â the individual stands behind the loan with their personal net worth.
Personal guarantees are standard on most unsecured business loans in the UK, including those from fintech lenders (Funding Circle, iwoca) and banks. The fact that a loan is described as “unsecured” typically means no charge over a specific business asset â it does not mean no personal guarantee.
Types
- Unlimited guarantee: Full liability for the loan amount, interest, and enforcement costs
- Limited guarantee: Capped at a defined amount
- Joint and several: Each of multiple guarantors is individually liable for the full amount
Key Points Before Signing
- Verify whether the guarantee is limited or unlimited
- Check whether it can be called on your personal home
- If multiple directors are guarantors, understand joint and several liability
- Have a solicitor review the guarantee document on larger facilities
Related Terms
- Personal liability: obligation to repay from personal assets
- Debenture: floating charge over all business assets â distinct from a personal guarantee but often used alongside one