Personal Guarantees for Business Loans: What Directors Need to Know
Most unsecured business loans require a personal guarantee from a director. We recommend capping the guarantee, considering personal guarantee insurance, or exploring secured loan options before signing.
- Tide Funding Options matches you with lenders across secured and unsecured options.
- Some lenders on the panel take asset security rather than a personal guarantee.
- One application reaches multiple lenders — compare terms before you commit.
What Is a Personal Guarantee on a Business Loan?
A personal guarantee is a legal commitment from a business director or shareholder to repay a loan if the business cannot. It makes you personally liable for the debt — meaning your personal assets (home, savings, investments) are at risk if the business defaults.
Lenders use personal guarantees as a risk-management tool on unsecured loans. Because there is no physical asset backing the loan, the guarantee gives the lender a legal route to recover funds from the individual rather than just the business.
There are two main types. An unlimited personal guarantee covers the full loan amount plus any interest and costs. A limited personal guarantee caps your liability at a fixed sum — for example, 50% of the outstanding balance. We recommend always pushing for a limited guarantee where possible.
Which Business Loan Lenders Require a Personal Guarantee?
Most unsecured business loan lenders require a personal guarantee from a director or majority shareholder. This includes iwoca, Funding Circle, Capify, and most high-street bank unsecured lending. We verified this across our reviewed lenders.
Secured lenders take a charge over a physical asset instead — property, equipment, or stock. If the business defaults, the lender recovers from the asset rather than the individual. No personal guarantee is required in most secured loan structures.
Government-backed Start Up Loans (delivered via the British Business Bank) do not require a personal guarantee or security in the traditional sense, though they are personal loans rather than business loans. For early-stage businesses, this can be a useful alternative to avoid a personal guarantee entirely.
What Happens If You Default on a Personal Guarantee?
If your business defaults and a personal guarantee is triggered, the lender will typically send a formal demand letter first. If you do not repay, they can apply to the county court for a county court judgment (CCJ) against you personally.
A CCJ on your personal credit file stays for six years and makes further credit — mortgages, personal loans, car finance — significantly harder to obtain. The lender can then apply for a charging order on your personal property or an attachment of earnings order.
Your primary residence can be put at risk through a charging order and, eventually, a forced sale — though courts are reluctant to grant these. Pension funds are generally protected. We recommend taking independent legal advice before signing any personal guarantee on a significant loan.
How to Limit Your Personal Guarantee on a Business Loan
Before signing, try to negotiate the terms. A fixed-sum cap limits your liability to a specific amount rather than the full loan. A time-limited guarantee expires after a set period — for example, two years. A reducing guarantee decreases your liability in line with the outstanding loan balance.
Personal guarantee insurance (PGI) covers your personal liability if the guarantee is called. Premiums typically run at 1–3% of the guaranteed amount per year. Some lenders actively accept PGI as a risk-mitigating factor — worth confirming with your lender before you take a policy out.
We recommend instructing a solicitor to review any guarantee document before signing. Personal guarantees are legally binding and difficult to exit once signed. The cost of a solicitor review is small compared to the potential personal exposure.
Alternatives to Signing a Personal Guarantee
The most straightforward alternative is a secured business loan. By providing a charge over a business asset — property, equipment, vehicles — the lender has security without requiring your personal guarantee. The asset is at risk rather than your personal finances.
Invoice finance uses your outstanding invoices as security. The lender advances a percentage of the invoice value and is repaid when your customer pays. No personal guarantee is typically required because the receivables themselves act as collateral.
Asset finance works similarly — the financed asset (machinery, vehicles, equipment) secures the loan. We found that businesses with significant asset bases can often avoid personal guarantees entirely by structuring finance around those assets.
Personal Guarantee FAQs
Can I get a business loan without a personal guarantee?
Yes, in some cases. Secured loans use a business asset as security instead of a personal guarantee. Invoice finance and asset finance are structured around business receivables or assets — no personal guarantee is typically required. Government-backed Start Up Loans do not require a traditional personal guarantee either.
What assets can a lender claim if a personal guarantee is called?
Your personal savings, investments, and — in more serious cases — your home (via a charging order and forced sale). Pension funds are generally protected from creditors. The legal process takes time: a lender must obtain a CCJ, then a charging order, before any forced sale can proceed.
Can I negotiate the terms of a personal guarantee?
Often yes. Common negotiating points include capping the guarantee at a fixed sum, adding a time limit, or including a reducing clause so your liability decreases with the outstanding balance. Not all lenders will negotiate, but it is always worth asking — particularly on larger loans.
Does a personal guarantee affect my personal credit score?
The guarantee itself does not appear on your credit file. However, if the guarantee is called and you do not repay, the lender can pursue a county court judgment (CCJ) against you personally — which will appear on your personal credit file for six years and significantly affect your credit rating.
This guide was researched using primary sources including FCA guidance, British Business Bank documentation, and lender primary websites. The content covers personal guarantees on business loans. Verified in May 2026.
The information covers general principles applicable to UK businesses and is not financial or legal advice. Personal guarantee terms vary by lender and loan structure. Take independent legal advice before signing any personal guarantee.
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