Personal Guarantee Guide

A personal guarantee is a legal commitment by an individual (typically a company director, shareholder, or business owner) to repay a business debt if the business cannot. By giving a personal guarantee, you put your personal assets — including your home, savings, and other possessions — at risk if the business defaults and the lender enforces the guarantee. Personal guarantees are never routine and never risk-free. The UK Insolvency Service provides guidance at gov.uk — you should read it before signing any guarantee.

Guarantees can be secured or unsecured. A secured guarantee is backed by specific assets (such as your home) — the lender can take those assets directly if you default. An unsecured guarantee is not backed by specific assets but the lender can still pursue you personally through the courts. Guarantees can also be limited (capped at a specific amount) or unlimited (covering all sums owed). Where there are multiple guarantors, guarantees are often "joint and several" — meaning the lender can pursue any one guarantor for the full amount, not just their "share".

If the business defaults and the lender calls on the guarantee, the lender can pursue you personally for the amount owed. This can lead to personal bankruptcy, loss of your home, and seizure of personal assets. If the guarantee is secured, the lender may take possession of the secured asset. If unsecured, the lender can obtain a court judgment and enforce it through bailiffs, charging orders, attachment of earnings, or bankruptcy proceedings. These consequences are serious and can be life-changing. Never assume a guarantee will not be enforced.

A limited guarantee caps your liability at a specific amount. An unlimited guarantee has no cap. Guarantees can be for a specific facility or can be "continuing" — covering not just the current facility but future borrowing under the same arrangement. Continuing security means your liability may extend to new facilities or increased limits unless the guarantee is formally released or amended. Always check whether a guarantee is limited or unlimited, and whether it is continuing security.

A personal guarantee does not automatically end when a facility is repaid — it must be formally released by the lender. If the facility is increased, restructured, or replaced, the guarantee may continue or may need to be re-executed. If you want to be released from a guarantee (for example, when leaving a business), you must negotiate this with the lender — it is not automatic. Lenders often require guarantors to obtain independent legal advice (ILA) before signing, to ensure they understand the risks. You should always take independent legal advice before giving a personal guarantee — never rely solely on the lender's or broker's explanation.

Personal guarantee insurance is available from some providers and can cover a portion of the amount you might be called upon to pay if the lender enforces the guarantee. This insurance does not remove your liability — the guarantee remains in force and the lender can still pursue you. It may provide a partial financial backstop if a valid claim is paid. Whether such insurance is appropriate depends on your circumstances and you should seek professional advice. The availability, terms and cost of such insurance vary and are not guaranteed.