Guides6 min read
What is a personal guarantee — and do you have to give one for business finance?
A personal guarantee is a promise to repay business borrowing if the company cannot. Here is when lenders request one and what your options are.
Tera
A personal guarantee (PG) is a legal promise by a director or individual to repay business borrowing if the company cannot. Many UK commercial finance providers request a PG for smaller businesses and unsecured facilities, but it is not always mandatory — it depends on the finance type, amount, security offered and the provider's criteria.
What a personal guarantee is in plain English
When a limited company borrows, the lender's primary recourse is normally the company itself. A personal guarantee adds a second layer: named individuals — usually directors — agree to meet the debt personally if the business cannot.
Who signs
Directors are the most common signatories. Shareholders, partners in a partnership, or sole traders may also provide guarantees depending on structure. Multiple directors may each sign, sometimes on a joint and several basis.
Limited vs unlimited guarantees
An unlimited guarantee means you could be liable for the full outstanding amount plus costs. A limited guarantee caps your personal liability at a stated figure. Not all providers offer limited guarantees — terms vary.
Joint and several liability
Where multiple people guarantee the same facility, the lender may pursue any one guarantor for the full amount. This is general information only — not legal advice. For complex arrangements, independent legal advice may be appropriate.
Separate from the business facility agreement
The personal guarantee is usually a distinct legal document from the main loan or facility agreement. Read both carefully before signing. You should understand what each document commits you to.
When lenders commonly request a personal guarantee
Unsecured business loans and smaller Ltd companies
Without property or equipment securing the facility, providers often look to directors for additional assurance. Business loans to smaller limited companies frequently involve PG requests — especially in the first few years of trading.
Higher loan-to-value or weaker trading profile
Where the provider perceives higher risk — limited trading history, tight cash flow, or a higher amount relative to turnover — a PG may be more likely. This is a commercial decision by the lender, not a universal rule.
Commercial property finance
Commercial property finance is secured against the property, but lenders may still request director guarantees — particularly for smaller SPVs or first-time commercial borrowers.
When PGs are less common
- Strong asset-backed facilities where the asset provides sufficient security
- Some invoice finance structures (though director indemnities may still apply)
- Established businesses with strong balance sheets borrowing against clear security
What a personal guarantee means for you personally
Liability if the business defaults
If the company cannot meet repayments and the lender calls on the guarantee, you may be personally responsible for the guaranteed amount. This could affect personal savings, property and other assets depending on the guarantee terms and enforcement process.
Duration
Guarantees typically run for the life of the facility. They may not automatically end when you resign as a director — check release terms in the documentation.
Release of guarantee
Some providers will consider releasing or reducing a guarantee on refinance, after sustained repayment, or when security improves. This is negotiated case by case and is not guaranteed.
Do you have to give a personal guarantee?
No — you can decline. However, the provider may withdraw the offer or not proceed. Whether alternatives exist depends on your circumstances.
Alternatives to signing
- Offering additional security — property, equipment or cash deposit
- Choosing asset finance where the asset secures the facility
- Exploring invoice finance where the debtor ledger supports the facility
- Requesting a lower facility amount
- Asking whether a limited guarantee is available
Role of a broker
A commercial finance broker arranges introductions — they do not advise you to sign or refuse a guarantee. A Tera specialist can explain when PGs are typical for cases like yours and help you understand provider documentation before you decide. See how it works.
Questions to ask before signing
- Is the guarantee limited or unlimited?
- What events trigger a call on the guarantee?
- Can it be released if the facility is refinanced or repaid early?
- Are there multiple guarantors — and how is liability shared?
- What costs apply on enforcement?
How Tera approaches personal guarantees
Our specialists explain when personal guarantees are commonly requested for your finance type and amount. There is no pressure to proceed. Review all provider documents carefully, and consider independent legal advice for significant commitments.
If your business is in its first year of trading, you may find our guide on business finance under one year helpful alongside this article. Start an assessment when you are ready to explore options.
Common questions
Tera Business Finance is a credit broker, not a lender, and an Appointed Representative of Moorgate Broker Network. Finance is subject to status and lender terms.
