What is a personal guarantee, and what am I really signing?
Sterling's answer A personal guarantee is you promising to pay the company's debt if the company cannot. It quietly takes away the limited liability you set the company up for, so read every word and get advice before you sign.
Want a straight answer for your business?
See who'll fund meA personal guarantee is a promise from you, as a director, to repay the company's debt yourself if the company cannot. It turns company borrowing into personal exposure. It is very common on unsecured business finance, including many business loans and cash advances, and it is the single most important clause to read before you sign.
Why funders ask for one
A limited company is its own legal person, so its debts are normally its own. A personal guarantee is how a funder gets around that. GOV.UK's director guidance is direct: "You are responsible for any money owed by your company that has been personally guaranteed by you", with the examples of "a finance agreement, overdraft or a bank loan guaranteed by the director."
From the funder's side, it does two things. It gives them someone to pursue if the company fails, and it makes sure the director is personally committed to repaying.
What to check in the wording
- Amount. Is it the full facility plus interest and costs, or capped at a fixed figure?
- Joint and several. With more than one guarantor, each of you can usually be pursued for the full amount, not just your share.
- What triggers it. A missed payment? Insolvency? Any breach of the agreement?
- Duration. Does it end when the facility is repaid, or does it cover future borrowing too ("all monies")?
- Security behind it. Is it backed by a charge over your home? That is a much bigger commitment.
- Waivers. Clauses where you give up defences you would otherwise have.
Sterling's take: an "all monies" personal guarantee with no cap is a blank cheque with your name on it. Ask for a cap.
How a personal guarantee can come back to you
If the company cannot pay and you do not pay under the personal guarantee, the funder can take you to court. A county court judgment against you personally stays on the Register of Judgments, Orders and Fines for 6 years, unless you pay in full within one month. GOV.UK also notes that banks and loan companies use that register to decide whether to give you credit.
How to limit your exposure
- Negotiate a cap at a fixed amount, ideally below the full facility.
- Ask for a time limit, or for the personal guarantee to fall away once a share is repaid.
- Avoid security over your home unless you understand the consequences.
- Get independent legal advice. Some funders require it anyway.
- Keep a copy and diarise when it ends.
What to do next
Before you apply anywhere, ask the funder in writing whether a personal guarantee is required and on what terms. Read do I need security for a business loan to see how guarantees sit alongside debentures and charges, and the business loans guide for the rest of the picture.
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Questions owners ask
Can I limit a personal guarantee?
Sometimes. You can ask for a cap on the amount, a time limit, or for it to cover only part of the facility. Funders do not always agree, but it costs nothing to ask.
What happens if the company fails?
The funder can pursue you personally for the amount the personal guarantee covers, after or alongside claiming from the company, depending on the wording.
Does a personal guarantee show on my credit file?
The personal guarantee itself is a contract with the funder. If they need to enforce it and you do not pay, any resulting judgment against you can affect your personal credit.
Should I take legal advice?
Yes. A personal guarantee can put your own assets at risk, and some funders want you to have had independent legal advice before you sign.