Five Things to Look Out for When Agreeing to a Personal Guarantee

Before signing a personal guarantee for your limited company borrowing, understand the key risks and protections available. Learn five crucial things every UK director should know.

December 5th, 2025

When a limited company seeks finance, lenders often require directors to provide a personal guarantee.

Lenders do this so they have a point of contact to revert to should the borrowing limited company go bust or fail to pay. Statistically, limited company borrowing with a personal guarantee is much less likely to default compared to borrowing without a personal guarantee.

This means the guarantee adds an extra layer of security for the lender — but for the guarantor, it means personal exposure to business debt.

Because a personal guarantee can be a mandatory condition of borrowing, it’s essential to understand exactly what you’re agreeing to and how you can protect yourself even with fairly short term borrowing.

Here are five key things to consider before giving a personal guarantee in the UK.

1. The Extent of Your Liability

Not all guarantees are created equal. Some are limited, capping the amount you’re personally responsible for; others are unlimited, making you liable for the full outstanding debt.

Always clarify whether the guarantee is joint and several (where each guarantor can be pursued for the full amount) and ask the lender for a written cap.

It many cases the level of personal guarantee can be negotiable, it is always worth asking the question – nothing ventured, nothing gained.

2. The Impact on Your Personal Assets

A personal guarantee effectively puts your personal assets on the line, including your home and savings. Whilst most personal guarantees are not directly linked to your personal assets it remains a potential real liability.

While some lenders may agree to exclude certain assets, most retain the right to enforce recovery through personal means if your company defaults. Always take independent legal advice before proceeding — many lenders will insist on it anyway.

3. Your Rights and Release Terms

You might assume your liability ends once the loan is repaid, but that’s not always the case.
Check:

Whether the guarantee applies to future borrowings or only the initial loan.
The process for revoking your guarantee if you leave the company.
Whether you’ll receive written confirmation once the guarantee is discharged.

Without clear release terms, your guarantee could remain in force indefinitely. It is not uncommon to see this happen with bank lending where the personal guarantee given covers any liability and not just the facility it was given for.

4. Alternative Forms of Security

Before offering a personal guarantee, explore alternatives such as:

Debentures or floating charges over company assets.
Security deposits or business insurance.
Limited guarantees with defined exposure.

Lenders may accept these in place of full personal liability, particularly if your business has a strong credit record.

Remember that lenders consider borrowing backed by just a personal guarantee to be ‘unsecured’ because it is not backed by a ‘tangible’ piece of asset, i.e. property. It is important to understand this given the growth of unsecured lenders.

5. The Role of Personal Guarantee Insurance

In recent years, personal guarantee insurance has become a popular option for UK directors. This specialist insurance can cover a portion (often 60–80%) of your liability if the guarantee is called upon.

While it doesn’t remove your legal responsibility, it can soften the financial impact and protect your family’s future. It can also provide enough cover to obtain a full and final settlement from the lender, it is an option that many guarantors either don’t consider or don’t realise it is an option for them.

Final Thoughts

Signing a personal guarantee is a serious commitment that blurs the line between your business and personal finances.

Be aware that signing a personal guarantee can be mandatory if you want the business borrowing, however before agreeing to support limited company borrowing, ensure you fully understand the risks, negotiate reasonable terms, and explore insurance or alternative security where possible.

If in doubt, speak to a professional adviser familiar with UK lending and director liabilities, we are happy to help.

FAQs

1. Can I refuse to sign a personal guarantee?
Yes, but the lender may then refuse the loan or reduce the amount offered. It’s worth negotiating other forms of security.

2. Does a personal guarantee affect my credit score?
Not directly — unless the guarantee is called upon and you fail to meet your obligations, in which case it could impact your personal credit record.

3. Can I withdraw a personal guarantee later?
Only if the lender agrees in writing. Without explicit release, your guarantee remains binding even if you leave the company.

4. Is personal guarantee insurance tax-deductible?
In some cases, yes — particularly if the policy is taken out by the company. Always check with a tax adviser.

5. What happens if more than one director signs a guarantee?
If the guarantee is joint and several, each director could be pursued for the full amount owed, not just their share.

David Farmer

Over 30 years finance experience. Former credit underwriter, founder of Lime Finance Solutions in 2012. Multi Award winning business, featured in Sunday Telegraph, Parliamentary Review, Sky TV and others. Regular contributor to press and business associations. FCA Authorised, ALIBF Qualified. Specialist in Commercial Mortgages, Business Lending, Property and Development Finance.