Personal guarantees for business loans: what a director is signing

A personal guarantee is a legally binding agreement between a lender and a business owner or director, under which that person will be personally liable for repaying the loan if the business defaults on its repayments or becomes insolvent. That is the British Business Bank’s definition. The guarantee sits beside the loan agreement as a separate commitment, signed by you as an individual and not on the company’s behalf.

The point of a limited company is that its owners are responsible for business debts only up to the value of their investment. A personal guarantee on a business loan sets that protection aside for the debt it covers. This guide is general information, not legal advice.

Lenders ask for a personal guarantee when the business cannot offer enough security of its own. Small business representatives told the Financial Conduct Authority in 2026 that guarantees are commonly required where businesses lack collateral, including in the service sector and among newer firms, and that the requirement can be a significant barrier to seeking finance.

A guarantee also tells the lender that the person running the company is committed to the debt being repaid. Whether one is asked for, and for how much, is each lender’s decision, so it is worth seeing how different business lenders compare before you treat a guarantee as unavoidable.

Your personal assets are at risk: the British Business Bank lists the home, vehicles, savings and investments. If those do not cover what is owed, bankruptcy is possible.

The lender’s claim is against you, so it does not end because the company has stopped trading or been wound up. That is the situation a guarantee exists for.

A guarantee may cover the whole loan or only a part of it, and the document itself decides which. On larger loans a lender may ask for more than one guarantor.

The wording matters more than the label, so establish these points from the document before you sign:

• Whether your liability is limited to a stated amount, and whether interest and the lender’s costs sit inside or on top of that amount.
• Whether the guarantee covers this facility only, or other borrowing from the same lender as well.
• Where there are several guarantors, how much each of you could be asked to pay.
• Whether the lender also wants security over an asset of yours, such as a property, to support the guarantee.
• The events that allow the lender to call on the guarantee.

Mostly not, because lending to limited companies is outside the FCA’s remit. Its consumer credit rules reach business lending only where the borrower is a sole trader, small partnership or similar and is borrowing £25,000 or less.

Where lending is regulated, guarantees are rare. In work published in December 2024 the FCA sampled 15 firms and found that 0.3% of their regulated loans had a personal guarantee, and that 8 of the 15 took none on regulated lending. It found no material concerns about compliance with its rules, and suggested firms consider giving guarantors regular updates on their liability.

Under the scheme a lender can take a personal guarantee on a facility of any size, if that is part of its normal lending practice, but it cannot take your principal private residence as security.

Two points are often misread. First, the scheme’s 70% guarantee is to the lender, and the borrower always remains 100% liable for the debt. It does not replace a personal guarantee or reduce what you owe. Second, the rule concerns your main home. A guarantee under the scheme still makes you personally liable.

In December 2025 the government said it was introducing a mandatory code of conduct for the scheme’s accredited lenders, so that communications about personal guarantees are clear and their use is fair and transparent. In September 2026 the FCA described that code as still being introduced. Check the British Business Bank’s scheme pages for its current status, and see our guide to the Growth Guarantee Scheme for how the scheme works.

A personal guarantee is given by a person and reaches that person’s assets, while a debenture is given by the company and reaches the company’s assets. A lender can ask for both on the same loan.

Our explainer on what a debenture is covers fixed and floating charges and how registration works.

Sometimes, where the lender is satisfied by the business’s own strength or by other security. Whether it is possible depends on the lender, the amount and the business, and it is never certain.

• Security from the business. A company with assets may be able to offer security over them in place of, or alongside, a guarantee.
• Finance tied to an asset. Under hire purchase the lender owns the vehicle or machine until the agreement is completed. Some lenders still ask for a guarantee.
• A lower exposure. If a guarantee is required, ask whether it can be limited to a set amount or to part of the loan.
• Insurance. Personal guarantee insurance exists as a product. The British Business Bank’s advice is to make sure you fully understand the policy terms.

Ask about security at the start, when you are choosing between offers. Our guide to comparing business loan offers sets security and guarantees beside cost.

Take independent legal advice and get the lender’s answers in writing. The British Business Bank tells guarantors to seek independent legal advice before signing, and some lenders require the guarantee to be witnessed by a solicitor who confirms in writing that the advice was given.

• Read the whole document. The guarantee is what the lender will rely on, not what was said in a call.
• Work through the worst case. Decide what you would lose if the full guaranteed amount were demanded, and whether you could bear it.
• Tell the people affected. If your home is among the assets at risk, the people you share it with should know before you sign.
• Ask how it ends. Find out how and when the guarantee is released and get the release in writing. Do not assume it ends when you resign as a director or sell your shares. That depends on the document.
• Refuse to be rushed. If you are pressed to sign the same day, slow down.

A guarantee is the wrong choice if losing the assets behind it would be more than you could recover from, or if the business is borrowing to cover losses and not a gap in timing. The tax treatment of anything paid under a guarantee is a question for your accountant.

Capzy is a credit broker, not a lender, and gets paid by the lender. We introduce businesses to lenders, and the lender decides whether it requires a personal guarantee and on what terms.

You can check your funding options with a soft search that does not affect your credit score. A full application to a lender may involve a hard search, and all funding is subject to status and lender criteria. Capzy does not give legal advice.