Personal guarantees on business borrowing.
A personal guarantee is one of the most consequential lines on a term sheet, and one of the most negotiable, yet it is the one a borrower is most likely to sign without reading. It is a promise by a director or owner to meet the company’s debt from their own money if the company cannot. This guide sets out what a guarantee is and is not, where it is standard and where it moves, how to hold its scope down, and what actually happens if it is ever called. It is written for the person who has one in front of them, before they sign.
This is general guidance for the borrower’s side, not advice on your specific facility, and not legal advice. Every figure below is attributed to a named UK source. For the shorter version, the hub answer on personal guarantees sits on the main guides page.
A contingent promise that never transfers the debt to you.
A personal guarantee is, in the Insolvency Service’s own words, “a legally binding agreement that the director will personally repay a debt if the company fails to meet its financial obligations.” The word contingent is the one to hold onto. A guarantee does not move the company’s debt onto you at the outset. It sits behind the company and takes effect only if the company defaults and the lender is left short after it has pursued the business and realised its own security. The exposure is real, but it is a backstop, and its size is a matter of drafting rather than of the word “guarantee” itself.
Two distinctions do most of the work. A guarantee is not company security: a debenture, a fixed and floating charge over the company’s own assets, is the lender’s claim on the business, whereas the guarantee reaches past the company to the individual behind it, which is why a lender already well secured by a debenture has less genuine need of a broad guarantee. Nor is a guarantee a single, standard instrument. An unlimited, all-monies guarantee that covers every present and future liability of the company is a completely different thing from one capped at a fixed sum, limited to one named facility, and released once the company clears an agreed test. Both are called “a personal guarantee” in conversation. Only the second leaves the director with a known, finite number.
SourceInsolvency Service (Companies House director information hub), “Personal guarantees”, GOV.UK. Definition and the contingent nature of the guarantee.
Whether a guarantee is on the table depends on how the lender gets repaid.
The single best predictor of whether you will be asked for a personal guarantee is not the size of the loan but where the lender looks for repayment. The British Business Bank puts it simply: a personal guarantee is usually required on unsecured lending, the borrowing you take without pledging business assets. The less a lender can rely on the company’s own assets and cash flow, the more it reaches for the individual behind them. That logic, rather than any lender being “tougher” than another, is what sorts the market. The categories below are a trade-off, not a ranking; the right lender is the one whose security appetite fits the deal, and where a well-run process gives you competing answers to hold the guarantee against.
On owner-managed lending, a high-street bank will routinely ask for a personal guarantee, and on smaller facilities often wants it supported by a charge over property. This is the setting where a guarantee is most expected — and, precisely because it is a default ask rather than a considered one, where a borrower has the most room to cap it, carve out the home, and time-limit it.
Challenger banks lending against cash flow rather than a hard asset base rely more on the borrower and so tend to want a guarantee, but they compete hard for good credits and will trade its breadth against margin and covenants. The guarantee is a negotiating chip here more than a fixed requirement.
Where the facility is secured on specific assets — receivables under invoice finance, plant and equipment, stock — the lender is repaid from the asset it has funded, so the residual need for a personal guarantee is smaller. Guarantees still appear, but they are more readily capped or narrowed because the lender's core security sits in the assets, not the individual.
On a sponsor-backed or larger cash-flow deal, funds take security over the company and its shares and look to the business for repayment, not to a director's house; a personal guarantee is unusual on this kind of structure. It is the most expensive corner of the market and the right answer only when cheaper sources decline or cannot do the structure — but on the specific question of personal exposure, its security tends to be structural rather than personal.
The pattern to read across the row is that a guarantee tends to appear where a lender’s claim on the company itself is weakest, and to soften where the lender is already holding proper company security. That is the lever. Where more than one lender wants the business, the breadth of the guarantee becomes one of the things they compete on, which is a large part of why running a real process does more for personal exposure than arguing a single term sheet line by line.
SourceBritish Business Bank, “A guide to personal guarantees for business borrowing” (personal guarantees on unsecured lending). Lender-type stances are the firm’s characterisation of ordinary UK lower-mid-market practice, not a claim about any named lender.
Five levers turn an open-ended promise into a contained one.
The British Business Bank notes that a guarantor is liable “up to an agreed maximum” — which is to say a cap is ordinary, not exotic. The scope of a guarantee is set by a small number of terms, and each of them is movable more often than borrowers assume. None of them is offered unprompted. Work through them as one negotiation, because they trade against each other and against price and company security, not as a list of separate asks.
The cap — a fixed sum, not the whole facility
The single most important term. An unlimited guarantee can very often be moved to a defined maximum — the first, say, £250,000 of any shortfall rather than the entire debt — so the director's exposure is known and finite. Ask, too, for the cap to step down as the loan amortises, so it tracks the falling balance rather than the original figure.
Scope — one facility, not all company borrowing
An all-monies guarantee covers every present and future liability of the company. Limit it to the single named facility in front of you, so a guarantee you gave on a term loan does not silently pick up an overdraft, an asset finance line, or the next facility the company draws.
A time limit and a release trigger
Ask for the guarantee to fall away once the company clears an agreed leverage or coverage test, or after a defined period of clean trading. A guarantee that outlives the risk it was written to cover is pure surplus exposure; a release condition ends it at the point the lender's residual risk has gone.
Carve out the family home
Keep the principal residence out of the security package, and resist a supporting charge over it wherever the numbers allow. It is the asset with the least to do with the company and the most at stake for the household, and on government-scheme lending it cannot be taken as security at all.
Several, not joint-and-several, where there is more than one guarantor
Under joint-and-several liability the lender can pursue any single director for the entire debt, not a share of it. Push for several liability capped at each director's portion, so no one guarantor can be made to carry the whole. Where the lender will not move, agree a contribution arrangement between the directors so the burden is at least shared fairly between you.
On the joint-and-several point, the difference is worth a worked figure because it is the one borrowers most often miss. Suppose three directors guarantee a £300,000 shortfall. Under a joint-and-several guarantee, the lender can pursue any one of them for the entire £300,000 and leave that director to chase the other two; under a several guarantee capped at a third each, no director is exposed beyond £100,000. Where the lender will not move off joint-and-several, an internal contribution agreement between the directors at least fixes how the burden is shared between you, even though it does not bind the lender.
SourceBritish Business Bank, “A guide to personal guarantees for business borrowing” (liability “up to an agreed maximum”); Insolvency Service, “Personal guarantees” (joint-and-several: multiple guarantors liable for the full debt).
It transfers part of the risk at a running cost, never all of it.
Where a guarantee cannot be negotiated away, it can sometimes be insured. Personal guarantee insurance pays out a proportion of a called guarantee, so the director carries the balance rather than the whole. Two numbers set expectations. The proportion covered is partial by design: on Purbeck’s cover, the market leader in this niche, a policy typically insures a share of the guarantee that starts around 60% and can rise toward a maximum of 80% over successive years of holding it, never the full amount. And it is a recurring cost, not a one-off: the premium runs broadly in the region of roughly 1.6% to 5% of the insured amount each year, plus Insurance Premium Tax, priced on the loan, the company’s financials and the director’s own credit standing. On a £250,000 guarantee, that is roughly £4,000 to £12,500 a year for partial cover.
It is a hedge with a price: useful when the guarantee is unavoidable and the premium is small against the exposure it caps, and beside the point when the guarantee could have been narrowed or dropped in the first place. Insurance is the fallback after negotiation rather than a substitute for it. The cheaper move, almost always, is to have the guarantee capped, time-limited and released on the term sheet, so there is less exposure to insure at all.
SourcePurbeck Insurance Services, personal-guarantee-insurance cost commentary, purbeckinsurance.co.uk (indicative premium range and cover levels; individual quotes vary). The worked £250,000 figure applies the quoted range and is illustrative.
The lender pursues the company first, and the guarantor for what is left.
A guarantee is only ever called after the company has failed to pay and the lender has looked to the business and its security. At that point the guarantee lets the lender pursue the director personally for the shortfall, up to the cap. The Insolvency Service is blunt about the reach: personal assets “such as your home, car, savings and investments could be used to settle that company debt,” and if those are not enough, “you may be declared bankrupt.” That is the weight behind the five levers above, and the reason to hold the home out of the security net and to keep the cap proportionate to what the lender can genuinely lose after everything else has been pledged.
A common and costly confusion is the government-backed scheme. Where a facility is written under the Growth Guarantee Scheme, the state guarantees 70% of the balance to the lender if the borrower defaults, and the British Business Bank is explicit that the borrower “always remains 100% liable for the debt.” The government guarantee protects the lender, not you, and does not touch a personal guarantee you have separately given. One real protection the scheme does carry is that a Principal Private Residence cannot be taken as security under it — a hard rule across all accredited lenders. On any facility, scheme or not, confirm the lender’s forbearance and enforcement position in writing before you sign; a first covenant breach in practice leads far more often to a waiver or an amendment than to enforcement, but that is a matter for the documents, not for hope.
SourceInsolvency Service, “Personal guarantees” (personal assets and bankruptcy on enforcement); British Business Bank, Growth Guarantee Scheme FAQs (70% guarantee to the lender; borrower 100% liable; Principal Private Residence excluded as security). See also our note on refinancing Covid debt through the Growth Guarantee Scheme.
Read the guarantee as carefully as the margin.
The Insolvency Service’s standing advice is that you “must fully understand the terms of a personal guarantee before agreeing to it,” and that you should take independent specialist advice before you proceed. Many lenders require it: a solicitor’s certificate of independent legal advice is often a condition of the guarantee, and some need the signature witnessed. These are the six questions worth putting to the lender in writing before you get there.
Is the guarantee capped, and at what figure — and does the cap reduce as the loan is repaid?
Is it limited to this facility, or does it reach all present and future company borrowing?
What releases it — a leverage test, a coverage test, a clean-trading period — and is that written into the document?
Is my principal residence inside or outside the security, and is any charge over it truly necessary?
If there is more than one guarantor, is the liability several and capped, or joint-and-several for the full amount?
What is the lender's forbearance and enforcement position on a first breach, confirmed in writing before I sign?
A guarantee handled this way is a contained, deliberate backstop, proportionate to what the lender can really lose. Handled as boilerplate, it is an open-ended claim on your personal wealth that nobody in the room ever priced. For the background on why guarantees returned to lower-mid-market term sheets and how the negotiation runs in practice, see our note, personal guarantees are negotiable, and the piece on the retreat of the clearing banks that reshaped who lends in this market now.
A guarantee is worth a second read before you sign.
If a term sheet in front of you carries a personal guarantee, and you are not sure the scope is matched to the risk, an early and confidential conversation costs nothing and commits you to nothing. We act for the borrower’s side, so the incentive to narrow a guarantee runs the same way yours does. See how a mandate runs in how we work, or return to the guides for the rest of the questions borrowers ask.