What Is a Personal Guarantee?

A personal guarantee is a legally binding promise that you, as an individual, will repay a company’s debt if the company itself cannot. Lenders and other creditors ask directors for personal guarantees precisely because limited company status normally shields directors from personal liability for business debts. A personal guarantee overrides that protection for the specific debt it covers.

Directors most often sign personal guarantees for bank loans and overdrafts, commercial property leases, trade credit from suppliers, and asset finance agreements.

Limited vs Unlimited Personal Guarantees

Unlimited personal guarantee

This holds you liable for the full outstanding amount, including principal, interest, and any recovery costs, with no cap. It is the most common form lenders ask for, and it carries the most risk for the director signing it.

Limited personal guarantee

This caps your exposure at a specific sum or percentage of the facility. For example, a £50,000 cap on a £200,000 loan means your maximum personal liability is £50,000, regardless of how much the company ultimately owes.

Always check which type of guarantee you are signing. The difference between the two can mean the gap between a manageable liability and losing your home.

How Lenders Enforce a Personal Guarantee

If the company defaults and cannot repay, the lender can pursue you personally for the guaranteed amount. Enforcement can include:

  • A County Court Judgment against you personally.
  • A charging order against your personal property, once a CCJ is in place.
  • Attachment of earnings, taking money directly from your salary.
  • Personal bankruptcy proceedings, in serious cases.

These are not distant, theoretical risks. Lenders do enforce personal guarantees, especially where the company itself has no remaining assets to pursue.

What to Check Before You Sign

  • Is it limited or unlimited? Understand exactly how much you are exposing yourself to.
  • What does it actually cover? Principal, interest, fees, and legal costs may all be included.
  • Is it joint and several? If multiple directors sign, each one can typically be pursued for the full amount, not just their share, unless the guarantee specifically limits this.
  • Does it have an expiry or review point? Some guarantees tie to a specific facility and end when it is repaid or refinanced. Others can run indefinitely unless you actively negotiate an end date.

Reducing Your Risk

You cannot always avoid signing a personal guarantee, particularly for a new or small business without an established trading history. But you can take steps to manage the risk:

  • Negotiate a limited guarantee, capped at a specific amount, rather than accepting an unlimited one.
  • Ask whether guarantee liability can reduce over time as the facility is repaid.
  • Consider Personal Guarantee Insurance, which can cover part of your exposure if the business defaults.
  • Get independent legal advice before signing, rather than relying on the lender’s summary of the terms.

What Happens if You Cannot Pay

If a lender calls in a personal guarantee and you cannot pay, get advice immediately rather than ignoring the demand. Directors who engage early, and honestly, with the creditor sometimes negotiate the guaranteed amount down, particularly if the alternative is a lengthy and costly legal dispute. Waiting until court action is already underway generally narrows your options.

Frequently Asked Questions

Can a lender pursue my personal guarantee if the company enters liquidation?

Yes. A personal guarantee exists specifically to give the lender a route to recovery when the company itself cannot pay, including where the company has entered liquidation.

Is a personal guarantee the same as being personally liable for all company debts?

No. A personal guarantee only covers the specific debt or facility it relates to. Limited company status still protects you from other company debts you have not personally guaranteed.

Can I negotiate a personal guarantee before signing?

Often, yes. Lenders will sometimes agree to a limited guarantee, a lower cap, or a review date, particularly for established businesses with a solid trading history. It rarely hurts to ask.

What if I signed a personal guarantee years ago and forgot about it?

This happens more often than you might expect. If a creditor calls in an old guarantee, get legal advice to confirm it is still valid and enforceable before assuming you must pay in full.

Getting Legal Advice

If a lender is pursuing a personal guarantee against you, our guides to charging orders and removing a CCJ explain what enforcement can look like once a court judgment is in place. Our guide to wrongful trading covers other ways directors can face personal liability.

This article gives general information only. It does not constitute legal advice. Always get independent legal advice before signing a personal guarantee, or if a creditor is seeking to enforce one against you.