What you are agreeing to
A personal guarantee is a promise that you will repay the business's debt if the business cannot. It turns a company liability into a personal one, so it deserves the same care you would give to a personal loan or mortgage.
Limited or unlimited
Some guarantees are capped at a fixed amount or a percentage of the facility. Others are unlimited and may cover all debts owed to that lender, not just the loan in front of you. Always check the wording for phrases such as all monies.
Joint and several liability
Where several directors guarantee, the lender can usually pursue any one of them for the full amount. Agree between yourselves how you would share liability, and consider a deed of contribution.
Take independent advice
Many lenders require or recommend independent legal advice before a guarantee is signed. It is worth doing even when not required.
Alternatives and mitigations
- Personal guarantee insurance, offered by some funders
- Secured lending against business assets instead
- Asking for a lower cap or a release once the balance falls
Related service: Business loans, invoice, asset and bridging finance
This guide is general information and not financial advice. B2B Loans UK acts as an introducer only. All finance is subject to status, affordability and lender criteria.