Understanding Personal Guarantees: How UK Directors Can Limit Their Liability
Julian Dobbin
CEO · Mar 3, 2026 · 8 min read
A personal guarantee is the mechanism lenders use to extend their credit reach beyond the limited liability structure of a company. Signing one is a significant legal commitment that deserves careful attention, independent legal advice, and, where possible, negotiation to limit the exposure.
The legal basis of a personal guarantee
A personal guarantee is a contract between you (the guarantor) and the lender. By signing, you agree to be personally responsible for the company's debt if the company cannot or does not repay. The guarantee overrides the limited liability of your shareholding: as a shareholder, your maximum loss in a company failure is your share capital. As a guarantor, your loss can extend to your personal assets.
Guarantees must be in writing to be enforceable. They require the guarantor to have received independent legal advice (evidenced by a solicitor's certificate in many cases) before signing. The guarantee document specifies the exact obligation: the amount guaranteed, the conditions under which it can be called, and any limitations on the guarantor's exposure.
Negotiating limited rather than unlimited guarantees
Unlimited guarantees hold the guarantor liable for the full outstanding balance, all interest, and all enforcement costs. There is no cap on exposure. These are what most lenders request by default because they provide maximum protection. Always ask for a cap, even if the lender's initial position is unlimited.
Limited guarantees cap the exposure at a specific figure (for example, 50 percent of the original loan amount) or include specific exclusions. Common negotiated limitations include: a cap at the original principal only (excluding accrued interest and costs), a percentage cap of the facility (75 percent of the outstanding balance), or a time-limited guarantee that expires after a defined period of clean repayment.
"The default position on personal guarantees is always in the lender's favour. Every limitation you negotiate is a protection you have won. Never sign without reading and never sign without asking for changes."
- Julian Dobbin, CEO, Spark Finance
Joint and several liability: understanding co-guarantor risk
When a company has multiple directors and all are required to provide personal guarantees, the lender almost always insists on a joint and several guarantee. This means each guarantor is individually responsible for the full amount, not just their proportional share. If one director has no personal assets and the other has a home with equity, the lender can seek the full amount from the asset-rich director regardless of the equal 50-50 company ownership.
Where multiple directors are required to guarantee, document the internal agreement between directors on how any guarantee enforcement costs will be shared. Consider a formal co-guarantor indemnity agreement (drafted by a solicitor) that requires the non-pursued guarantor to reimburse the pursued one for any amount paid in excess of their agreed share.
Personal guarantee insurance and other protections
Personal Guarantee Insurance (PGI) is a growing product in the UK that allows directors to insure against the risk of their guarantee being called following company insolvency. Premiums are typically 1-3 percent of the insured amount per year. Coverage terms vary: some policies cover all types of insolvency, others exclude specific scenarios. Read the policy wording carefully, particularly the trigger conditions and any exclusions.
Some directors transfer significant personal assets into joint names with a spouse or partner before providing a guarantee, on the basis that jointly-owned assets cannot be seized in the same way as solely-owned ones. This approach requires careful legal advice and should not be done in contemplation of a specific lending obligation, as it can constitute a transaction at an undervalue or a transfer to defraud creditors if the company subsequently fails.
The bottom line
Spark Finance explains all personal guarantee requirements before you proceed with any facility and works with lenders who are clear about their PG requirements. Apply at apply.sparkfinance.co.uk to see your options.
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