If you run a limited company, you’ll very likely be asked for a personal guarantee (PG) when the company borrows. It’s one of the most important documents you’ll sign, and one of the least read.
What a personal guarantee is
A limited company is legally separate from its owners. That normally protects your personal finances if the company fails. A personal guarantee is a promise from you, as an individual, that you will repay the company’s debt if the company can’t.
In other words, a PG removes some of the protection of limited liability for that particular debt.
Why lenders ask for them
For a small company, the lender’s main comfort is often the people behind it. A PG shows you’re committed, and it gives the lender a second source of repayment. Most unsecured business lenders ask for one as standard.
Points to check before you sign
Is it limited or unlimited? A limited guarantee caps your liability at a set amount. An unlimited one could cover the full debt plus interest and costs. Ask whether a cap is possible.
Is it joint and several? If there are several directors, “joint and several” means the lender can claim the full amount from any one of you, not just your share.
Is it secured? Some PGs are backed by a charge on your home. Most unsecured lending isn’t, but check carefully.
When does it end? Does it fall away once the loan is repaid, or does it cover all future borrowing from that lender too?
Is there insurance? Some lenders and insurers offer personal guarantee insurance, which can cover part of a claim.
The Growth Guarantee Scheme and PGs
Under the Growth Guarantee Scheme, lenders can still take personal guarantees at their discretion, but they cannot take your main home as security. The government guarantee protects the lender, not you, so you remain liable for the full debt.
Get advice if you’re unsure
A PG is a legal commitment. If you have any doubts, speak to a solicitor before signing. Many lenders recommend this anyway. We’re not lawyers, but we’ll always tell you up front whether a lender requires a PG, so it doesn’t come as a surprise at the end.