What Is a Personal Guarantee on a Business Loan?
George Wilks
Commercial Lead · May 5, 2024 · 7 min read
A personal guarantee (PG) is a commitment by a director or owner to be personally liable for a business loan if the company fails to repay it. Many UK unsecured business loan lenders require a PG, particularly for limited companies. Understanding exactly what you are signing and what the consequences are is essential.
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What a personal guarantee commits you to
A personal guarantee makes the signatory (usually a director) personally responsible for the debt if the business defaults. This means the lender can pursue the individual's personal assets, including personal bank accounts and potentially their home, if the loan is not repaid. The key word is 'if': a PG is only called if the business defaults, not as a routine feature of repayment.
PGs can be limited or unlimited. A limited guarantee caps your personal liability at a specified amount (e.g. £50,000 regardless of the outstanding balance). An unlimited guarantee means full personal liability for the entire outstanding amount. Negotiate for a limited guarantee wherever possible, and ensure you understand whether you are giving a joint and several guarantee alongside other directors, which means each guarantor is individually liable for the full amount.
When lenders require a PG and when they do not
Most unsecured lenders require a PG for limited companies, particularly for amounts over £25,000 or for businesses with shorter trading histories. The PG compensates for the absence of physical collateral. Some fintech lenders offer no-PG products for well-established businesses with strong credit profiles, though rates are typically higher.
Secured business loans backed by business assets often do not require a personal guarantee because the asset provides sufficient security. Asset finance similarly usually relies on the asset as security rather than a PG. If avoiding a personal guarantee is important to you, secured or asset-backed lending is typically the better route.
"A personal guarantee should be read as carefully as a mortgage document. You are committing your personal financial position to the loan. Read every word, take independent legal advice if you are unsure, and never sign without understanding exactly what triggers a call on the guarantee."
- George Wilks, Commercial Lead
Frequently Asked Questions
Can a lender call a personal guarantee immediately if I miss one payment?
No. Most agreements require formal default and exhaustion of recovery from the business before a PG can be called. The process involves formal notices and typically months of legal process. However, the risk is real and the PG should be taken seriously from the moment you sign.
Does a personal guarantee affect my personal credit score?
Giving a PG alone does not affect your score. If the guarantee is called and enforcement action is taken against you personally, that will appear on your personal credit file.
The bottom line
Spark Finance can identify lenders whose terms include limited or no PG requirements for qualifying businesses. Start at apply.sparkfinance.co.uk.
Check your eligibilityAbout the author
George Wilks
Commercial Lead
George leads commercial relationships at Spark Finance, specialising in property-backed finance including bridging loans, development finance, and commercial mortgages. He works with investors, developers, and owner-occupiers to structure short and long-term property finance.
