Two very different readers land on a page about guarantor loans. One is a person with thin or damaged credit hoping a family member can help them borrow. The other is a company director being asked to personally back a business loan. We have written this guide for both, because the words sound similar and the consequences are not.
A guarantor loan and a director’s personal guarantee are not the same thing. The first is a consumer product that has all but disappeared in the UK. The second is standard practice on business lending, and it is the one most owners reading this actually need to understand. We will cover the consumer version honestly, then spend most of our time on the business one.
What a guarantor loan actually is
In its original consumer form, a guarantor loan lets someone with poor credit borrow because a second person agrees to cover the repayments if they default. The guarantor is usually a parent, partner or close friend with a stronger credit file. The lender leans on that second person’s finances, not the borrower’s, which is what makes the loan possible at all.
The trade-off is the price. These loans carried representative rates of roughly 39.9% to 49.9% APR, far above a mainstream personal loan. The guarantor was not a formality either. When Amigo Loans collapsed, the FCA found that one in four of its guarantors had been asked to step in and pay.
In a business context the word means something else entirely. Here a guarantor is almost always the owner of the company guaranteeing their own firm’s debt. We think that distinction matters more than any rate table, so it is worth being precise about which one applies to you.
The consumer guarantor loan market has largely gone
If you are searching for a consumer guarantor loan in 2026, the honest answer is that there is very little market left. The lenders that defined the sector have exited. Amigo Loans stopped lending in March 2023, TFS Loans went into administration in 2022, and Buddy Loans went the same way in 2021. George Banco, TrustTwo and UK Credit have all dropped the product.
Even the survivors have moved on. 1Plus1 Loans, once the most-cited name, now trades as Rate Drop and sells an unsecured personal loan with no guarantor at all, at 39.9% representative APR on amounts of £1,000 to £5,000. So if a comparison site still shows you a busy guarantor-loan market, treat it with suspicion. Much of it is out of date.
The regulator is part of the reason. The FCA censured Amigo in February 2023 for failing to properly assess whether borrowers and guarantors could afford the loans. It calculated a fine of £72.9m, then waived it so the redress scheme could survive. Around 210,000 claims were filed, and people eventually recovered about 18.5p in the pound, with the final payment landing in April 2025.
That is the context we would want a friend to know before chasing a consumer guarantor loan. The product has not just become expensive; it has become hard to find from a lender you would trust.
How a director’s personal guarantee works
On the business side, the equivalent of a guarantor is a personal guarantee, and it works the other way round. Instead of a third party backing you, you back your own company. If the business cannot repay, the lender can pursue you personally for the debt.
This is standard on unsecured business loans, asset finance and invoice finance, where there is no business collateral for the lender to take. A personal guarantee is what they take instead. In practice it is near-universal with alternative funders.
- Funding Circle requires a personal guarantee on every loan. On its flexible product the guarantee is capped at twice the initial loan amount.
- iwoca takes a guarantee from at least one director on all of its business lending. The guarantee can sometimes be negotiated as limited, covering as little as 20% of the balance, rather than unlimited.
- High-street banks such as NatWest and Barclays commonly ask directors of smaller limited companies to sign one, particularly where the loan is unsecured.
One detail is worth pinning down before you sign: whether the guarantee is limited or unlimited. A limited guarantee caps your exposure at a fixed figure. An unlimited one does not, and that is the version we would push back on hardest.
What signing a personal guarantee actually costs you
The whole point of a limited company is that your personal money sits behind a wall. A personal guarantee removes that wall for one specific debt, and that is the trade-off you are accepting.
If the company defaults, the lender can demand the balance from you directly, take legal action, pursue your savings and other assets, and damage your personal credit file. For a guarantee that runs into six figures, that is a real threat to a home and a pension, not a paperwork risk.
It is also more common than most owners realise. A 2024 survey by insurer Purbeck found 49% of small-business owners either are personal guarantors or expect to become one, yet 60% were unsure what a personal guarantee even was. Almost a third had decided against finance because one was required.
The Federation of Small Businesses felt strongly enough to file the first-ever FCA super-complaint over personal guarantees in December 2023, arguing they undermine limited liability and put owners off borrowing. We would not go as far as calling them unfair, but we would never sign one casually.
Who can act as a guarantor
If you do still need a consumer-style guarantor, or a co-director to share a business guarantee, lenders look for a fairly specific profile. The point is someone the lender can realistically recover from, so the bar sits on stability rather than goodwill.
- Financially stable, with a good credit history and income the lender can verify. This is the test that actually decides the application.
- A UK resident, usually 18 or over, and sometimes 21-plus, so the lender can pursue the debt through UK courts if it has to.
- Often not financially linked to the borrower. Many lenders prefer a guarantor who is not a spouse, because a linked household does not spread the risk.
- Fully informed and willing to be credit-checked. A guarantor who does not grasp that they may have to pay the whole balance should not be signing.
Whoever it is, the conversation should happen before any form is signed, not after a missed payment. We have seen relationships survive a failed business and not survive a surprise demand letter.
Is personal guarantee insurance worth the premium?
One option that genuinely reduces the risk is personal guarantee insurance, which pays out a share of the guaranteed amount if the business fails and the guarantee is called in. The main UK provider is Purbeck, underwritten by Markel.
The premium is a percentage of the sum you are guaranteeing, broadly in the region of 2% a year. On a £100,000 guarantee, insuring it costs you roughly £2,000 a year. Cover is partial and grows over time, typically starting around 60% of the guarantee in year one and rising to about 80% by year three.
For a director whose family home is effectively on the line, we think that premium is often worth it. For a small, limited guarantee on a short-term facility, it may not be. The honest answer depends on the size of the guarantee and how much of your own wealth it puts at risk, so price it against the worst case rather than the expected one.
Whatever you decide, get the exact premium, cover percentage and policy cap in writing from the insurer before you rely on it. The published ranges vary by source, and the figure that matters is the one on your own quote.
How we approached this guide
Our methodology: this guide was written from FCA publications, the Federation of Small Businesses super-complaint, lender terms from Funding Circle and iwoca, and published data from Purbeck. We have not arranged a guarantor loan or a personal guarantee ourselves, so we make no claim of first-hand borrowing experience; the judgements here are editorial, based on those sources.
Rates, premiums and provider terms change, so treat every figure as a guide and verify it directly with the lender or insurer before you act. Content verified June 2026.