Personal Guarantees on Business Loans: What You Are Signing
A personal guarantee means this: if your company cannot repay its loan, you repay it personally. Your house, your savings and your car are all on the line, even though the company is limited. That is the whole deal, and it deserves a proper read before anyone signs it.
Guarantees are normal in modern small business lending, and refusing to sign one usually means no loan. So the point of this page is not to put you off borrowing. It is to make sure that when you sign, you know exactly what you have agreed to.
What a personal guarantee actually is
A personal guarantee is a legal document you sign alongside a business loan. It says that if the company cannot pay the debt, you will pay it from your own pocket.
Directors sometimes assume a limited company keeps their personal money safe no matter what. For most debts it does. A guarantee is the exception you create yourself. By signing, you agree that this one debt can follow you home. If the company fails still owing money, the lender can pursue you personally, and your house, savings and car are all within reach.
It helps to be clear about what a guarantee is not. It is not a charge over one named asset, the way a mortgage is secured on a house. It is a general promise, and the promise is backed by everything you own.
Why lenders ask for one
Limited liability cuts both ways. The company structure protects your personal assets from business creditors. From where the lender sits, that same structure means there may be nothing worth claiming if the business folds. A young company with little on its balance sheet can walk away from a debt the lender cannot recover.
The guarantee closes that gap. It tells the lender two things. First, a real person stands behind the debt if the company cannot pay. Second, the director believes in the business enough to back it personally. A director who will not put anything behind the loan is, from the lender's side, asking them to carry all the risk.
This is why guarantees are so common in small business lending, and why turning one down usually ends the conversation. Being asked is not a sign of a predatory lender. It is the price of borrowing through a limited company.
Joint and several: when more than one director signs
If two or more directors sign the same guarantee, it will typically be on a joint and several basis. Those three words mean each signer is liable for the full debt, not for their share of it.
Say two directors each own half of a company that borrows £40,000. The business fails with £30,000 still owing. Many people assume each director now owes £15,000. That is not how it works. The lender can demand the full £30,000 from either one of them, and in practice it will chase whoever is easier to collect from. If your co-director has no assets and you own a house, expect the letter to arrive at your door.
| What people assume | What joint and several means |
|---|---|
| We owe half each | Each of you owes the full amount |
| The lender splits the claim between us | The lender can pick whoever is easiest to collect from |
| My co-director's share is their problem | Their share becomes your problem if they cannot pay |
A director who pays more than their share can pursue the other signer for a contribution afterwards. But that is a separate fight between the two of you, in your own time and at your own cost. The lender is not involved and does not have to wait for it.
What happens if the company cannot pay
A called guarantee follows a fairly predictable path. It rarely jumps straight to the worst case.
- Demand. The lender writes formally, saying the company has defaulted and asking you to pay under the guarantee, normally with a deadline attached.
- Negotiation. This is typically where repayment plans get agreed. A lender that can see a route to its money has little reason to escalate.
- Court. If nothing is agreed, the lender can sue you personally on the guarantee. A judgment opens the door to enforcement against your assets, which is where the house and the savings stop being theoretical.
- Bankruptcy. The extreme end. If a large debt stays unpaid, a lender can petition for your bankruptcy. It is the end of the road that the paperwork quietly allows for.
The honest summary: a called guarantee is serious, but it is a process with stages, and the early stages exist because a lender's aim is repayment, not repossession.
Personal guarantee insurance exists
You can insure part of a personal guarantee. Personal guarantee insurance is a policy that pays out a portion of what you owe if the guarantee is ever called. You pay a premium for it, the same as any other insurance.
Two honest notes. It covers part of the exposure, not all of it, so it softens the blow rather than removing it. And the premium is a real cost that sits on top of the interest you are already paying, which matters on a tight-margin loan.
It works if the guarantee is large and being called on it would be catastrophic for your household. Watch out for the exclusions and claim conditions in any policy, because that is where insurance always earns or loses its keep. This page names no providers, deliberately.
Four questions to ask before signing
These four questions turn a vague worry into specific numbers. Any lender comfortable with its own paperwork can answer them.
| Question | Why it matters |
|---|---|
| How much is the guarantee capped at? | An uncapped guarantee can cover the debt plus interest, fees and recovery costs. A cap turns an open-ended risk into a known number. |
| Does it reduce as I repay? | Some guarantees shrink with the loan balance. Others stay at the full original figure until the last payment clears. The difference grows every year you repay. |
| Does it survive refinancing? | A guarantee can outlive the loan it was signed for. An old guarantee that was never formally released can still be sitting there after you refinance elsewhere. The word that matters is release, in writing. |
| Can it be limited to a percentage? | With more than one director, a lender may agree that each signer's liability stops at a fixed share, instead of joint and several for the whole lot. Not every lender will agree, but asking costs nothing. |
The answers belong in the guarantee document itself, not in an email or a phone call. If the document does not say it, it is not agreed.
How three real lenders handle it
The position varies lender by lender. Three examples from this directory show the range.
| Lender | Position on personal guarantees |
|---|---|
| Stripe Capital | Requires a personal guarantee from a director or beneficial owner. |
| iwoca | Borrowers should expect to be asked for one. |
| Start Up Loans | Skips the question entirely, because the loan is personal in the first place. |
That last row deserves a second look. A Start Up Loan can feel friendlier because nobody hands you a guarantee to sign. The reason is that the loan sits with you personally from day one. There is no company shield to sign away, because on this debt there never was one. Your personal exposure is real either way. The guarantee is just the paperwork that makes it visible.
Common questions
Can I lose my house over a personal guarantee?
Yes, at the extreme end. A guarantee makes you personally liable, and if the debt goes unpaid through demand, negotiation and court, your assets, including your home, can be reached through enforcement or bankruptcy. It is the end of a long process rather than an automatic result, but it is real, and it is the reason the document deserves a careful read.
Doesn't my limited company protect me?
For most debts, yes. A personal guarantee is the exception you create yourself. By signing it, you agree that this one debt can follow you past the company. That is exactly why lenders ask for it.
Can I refuse to sign a personal guarantee?
You can always refuse, but it usually means no loan. Guarantees are standard in small business lending. The realistic negotiation is not whether to sign but what you sign: a capped amount, a guarantee that reduces as you repay, or a fixed share per director instead of joint and several.
Do all lenders require a personal guarantee?
No. Some require one outright, some ask case by case, and some products never raise the question because the borrowing is personal to begin with, as with Start Up Loans. Lender pages on this site note the position where it is known.
What happens to my guarantee if I resign as a director or sell the company?
Nothing automatic. The guarantee is a contract between you and the lender, and it stays in force until the lender formally releases you. Leaving the company does not end it. Anyone stepping back or selling up has a strong interest in getting a written release before the deal completes.
Is personal guarantee insurance worth it?
It exists, and it covers part of the exposure in exchange for a premium. Whether that premium is worth paying depends on the size of the guarantee, the price quoted and how much the risk would hurt your household. That is a judgement only you can make, ideally with the policy exclusions in front of you.
Facts checked on 7 September 2026. Information, not advice: check terms with the lender or scheme and speak to an accountant or FCA-authorised broker if unsure.