Security
Personal guarantee
A personal guarantee makes a director personally liable for the company's debt if the company cannot pay. What it covers and how it is capped matters far more than whether one is given at all.
Also called PG · director's guarantee · joint and several guarantee · personal guarantee insurance
Three directors, a £300,000 shortfall. Joint and several exposes any one of them to all of it.
| Structure | One director's maximum |
|---|---|
| Joint and several | £300k |
| Several, capped at a third | £100k |
Worked example from /guides/personal-guarantees. Not legal advice.
What a personal guarantee does
A personal guarantee is a promise by an individual, usually a director or shareholder, to meet the company's obligations if the company does not. It converts a corporate debt into a personal one, and it is why the distinction between a company and its owners, which holds in almost every other context, does not protect a guarantor here.
It is a feature of bank and owner-managed lending rather than of every facility. A cash-flow lender taking a debenture over the company and a charge over its shares may not require one at all. A smaller facility, a business with limited security, or a lender uncertain about the credit is more likely to ask.
The useful framing is not whether to resist a guarantee outright, which is usually a policy matter the lender will not move on, but what it covers, how much it can reach, and when it ends. Those three questions are where the negotiation sits.
Joint and several, and what it costs
This is the term borrowers most often miss, and the difference is worth a worked figure.
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 for a contribution. Under a several guarantee capped at a third each, no director is exposed beyond £100,000.
The lender's preference for joint and several is obvious: it lets them pursue whichever guarantor is most easily reached, rather than three separate claims. The consequence for an individual director is that their exposure is not their share of the debt but all of it.
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 them, even though it does not bind the lender.
Insuring a £250,000 guarantee runs roughly £4,000 to £12,500 a year, and buys partial cover only.
| Premium rate | Annual cost |
|---|---|
| At ~1.6% | £4k |
| At ~5% | £12.5k |
Source: /guides/personal-guarantees: premiums broadly 1.6% to 5% of the insured amount a year plus Insurance Premium Tax.
Caps and time limits
A monetary cap is the most commonly agreed limitation and the first thing to ask for. An uncapped guarantee follows the debt wherever it goes, including into any increase in the facility, so a cap set at the current exposure also prevents the guarantee expanding with future borrowing.
A time limit or a defined release trigger is the second. A guarantee given to support a facility during a difficult period should not survive indefinitely once the business has recovered, and tying release to a measurable condition, a leverage level reached, a period of compliance completed, a facility reduced below a threshold, turns a permanent exposure into a temporary one.
Both are easier to obtain at the outset than later. Once a guarantee is in place the lender has no commercial reason to release it, and a release usually has to be bought with something else.
What the guarantee reaches
A guarantee is a personal obligation, so it reaches the guarantor's personal assets. Whether specific assets can be excluded depends on the lender and the scheme under which the facility sits.
The principal private residence is the exclusion most often sought, and under some government-backed schemes the position is set by the scheme rules rather than by negotiation. Where a facility is written under such a scheme, the applicable rules on what a guarantee may reach are worth reading directly rather than assumed, because they differ between schemes and change over time.
The other point worth checking is whether the guarantee is supported by a legal charge over a specific property. A guarantee alone is an unsecured personal claim; a guarantee backed by a charge over the family home is a secured one, and the two are materially different in a default.
Guarantee insurance, and what it really buys
Personal guarantee insurance exists and is worth understanding before it is dismissed or relied upon.
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.
Two features matter. It is a recurring cost rather than a one-off, so over a five-year facility the cumulative premium is substantial. And the cover is partial rather than complete: policies typically insure a proportion of the guaranteed amount, often rising over the first years of the policy, so a director is not fully protected even while insured.
It is a hedge with a price. It earns its place where the guarantee is large relative to personal wealth and the director cannot obtain a cap, and it is poor value where a cap or a several-liability structure could have been negotiated instead.
The question is never whether to give one. It is what it covers, how much, and when it ends.
| Term | Negotiability |
|---|---|
| Whether one is required | Policy |
| Excluding the family home | 22–45 on the scale |
| Time limit or release trigger | 40–65 on the scale |
| Several rather than joint | 55–80 on the scale |
| A monetary cap | Most common |
Relative negotiability of each term. Illustrative market convention, not measured data. Not legal advice.
What happens on a default
A guarantee is normally called only after the company has failed to pay and the lender has looked to its corporate security. In practice it is the last step rather than the first, for the same reason enforcement generally is: a lender pursuing a director personally has usually already concluded the business will not recover.
The sequence matters for a guarantor's planning. There is normally a demand, a period in which to respond, and then enforcement. Where the guarantee is unsecured, enforcement means a personal claim through the courts; where it is supported by a charge over property, the lender has a more direct route.
Because the consequences are personal and can be severe, this is the point at which independent advice is not optional. A guarantor facing a demand should take their own legal advice rather than relying on the company's advisers, whose client is the company.
When a guarantee comes off
Guarantees outlive the circumstances that produced them more often than they should, and nobody in the process has an interest in reminding you.
The routine triggers for a release are a refinancing that repays the facility the guarantee supported, a sale of the business, or the satisfaction of a release condition written into the guarantee at the outset. The first two require the guarantee to be formally released rather than merely left behind: repaying the debt does not automatically discharge the document, in the same way that repaying a loan does not clear a charge from the Companies House register.
The practical step is to treat guarantee releases as a completion item on any refinancing, alongside the release of corporate security, and to obtain written confirmation. A director who assumes an old guarantee lapsed when the facility was repaid may discover otherwise years later.
What to negotiate, in order
A monetary cap first, because it is the most commonly agreed and it bounds everything else. Then several rather than joint-and-several liability where there is more than one guarantor, since that is the difference between £100,000 and £300,000 in the worked example above.
Then a time limit or a defined release trigger. Then any exclusion of specific assets, subject to the scheme rules where a government-backed facility is involved. And finally, where none of those can be obtained and the exposure is large relative to personal wealth, consider insurance with clear eyes about its recurring cost and partial cover.
What rarely moves is whether a guarantee is required at all. Treating that as the negotiation, and conceding the terms in order to win it, is the common mistake: the terms are where the money is.
Common questions
What is a personal guarantee?
A promise by an individual, usually a director or shareholder, to meet the company's obligations if the company does not. It converts a corporate debt into a personal one, so the separation between a company and its owners does not protect a guarantor.
What is the difference between joint and several liability?
Under a joint-and-several guarantee the lender can pursue any one guarantor for the entire amount. Where three directors guarantee a £300,000 shortfall, one of them can be pursued for all £300,000 and left to chase the others. Under a several guarantee capped at a third each, no director is exposed beyond £100,000.
Can I cap a personal guarantee?
A monetary cap is the most commonly agreed limitation and the first thing to ask for. An uncapped guarantee follows the debt, including into any increase in the facility, so a cap set at the current exposure also stops the guarantee expanding with future borrowing. It is far easier to obtain at the outset than later.
Can my home be excluded from a personal guarantee?
Sometimes, and it is the exclusion most often sought. Under some government-backed schemes the position is set by the scheme rules rather than by negotiation, so where a facility sits under such a scheme the applicable rules are worth reading directly. Also check whether the guarantee is supported by a legal charge over a specific property, which is materially different from an unsecured guarantee.
How much does personal guarantee insurance cost?
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 credit standing. On a £250,000 guarantee that is roughly £4,000 to £12,500 a year, and it is a recurring cost rather than a one-off.
Does PG insurance cover the whole guarantee?
No. Cover is typically partial, insuring a proportion of the guaranteed amount and often rising over the first years of the policy, so a director is not fully protected even while insured. It earns its place where the guarantee is large relative to personal wealth and no cap could be obtained, and is poor value where a cap or several liability was available instead.
When would a lender call a personal guarantee?
Normally only after the company has failed to pay and the lender has looked to its corporate security. It is the last step rather than the first, because a lender pursuing a director personally has usually already concluded the business will not recover. Anyone facing a demand should take independent legal advice rather than relying on the company's advisers.
Does my guarantee end when the loan is repaid?
Not automatically. Repaying the debt does not discharge the guarantee document, in the same way repaying a loan does not clear a charge from the Companies House register. Treat guarantee releases as a completion item on any refinancing, alongside the release of corporate security, and obtain written confirmation.
The full treatment sits in the guide: personal guarantees.
This page explains a term as it is used in the UK lower-mid-market. It is general information, not advice on any particular facility. Terms vary between lenders and between deals, and the drafting in your own agreement governs.