Ask two people what a guarantor loan is and you get two different answers. To someone with thin or damaged credit, it means a family member signing alongside them so a lender will say yes. To a company director, it means being asked to put personal money behind the company’s borrowing. The word is the same; what you are signing is 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. If a lender or broker has used the word with you, establish which of the two they mean before you discuss any figures.
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.
Borrowers paid heavily for that help, at 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 rather than somebody else’s.
The consumer guarantor loan market has largely gone
If you are looking for a consumer guarantor loan in 2026, there is very little market left to look at. The lenders that defined the sector have exited. Amigo Loans has closed and gone into liquidation, and TFS Loans went into administration in February 2022. George Banco, TrustTwo and UK Credit have all dropped the product.
Even the survivors have moved on. 1Plus1 Loans now trades as Rate Drop, and what it sells today is an unsecured personal loan rather than a guarantor loan, 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 Much of it is out of date.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. The redress scheme has now paid out, and its supervisors confirmed in August 2025 that it had been properly implemented.
That history matters more than any rate you are quoted. 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 says it asks for a personal guarantee on all its loans, including those under the Growth Guarantee Scheme. 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.
Before you sign, find out 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.
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 2023 survey by insurer Purbeck found 49% of small-business owners either are personal guarantors or expect to become one, yet in its 2024 survey 60% were unsure what a personal guarantee even was. 13% had backed out of a loan 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 call them unfair in themselves, because an unsecured lender has nothing else to hold, 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, the profile lenders want is fairly specific. They are looking for someone they 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. A relationship can survive a failed business. A surprise demand letter is harder to come back from.
Is personal guarantee insurance worth the premium?
Personal guarantee insurance pays out a share of the guaranteed amount if the business fails and the guarantee is called in. Unlike negotiating a cap on the guarantee, it does not need the lender’s agreement. 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, that is 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. Either way, 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
We wrote this guide 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 here as a guide rather than a quote anyone can be held to. Content verified October 2026.