Quick answer
A personal guarantee is a written promise by an individual - usually a company director - to repay a business loan if the company itself cannot. The lender's primary borrower is still the company, but the guarantor's personal assets become a backstop if the company defaults. PGs are standard on most UK unsecured SME lending and they are enforceable in court like any other contract.
The basic mechanics
A personal guarantee is signed by an individual - almost always a director, sometimes a major shareholder or a third-party guarantor - alongside the loan agreement. While the company is paying on time, the PG sits in the file and does nothing. It only becomes active if the company defaults and the lender has reasonable grounds to enforce.
When enforced, the lender can pursue the guarantor for the amount stated in the PG. That amount can be the full loan balance, a percentage of it, or a fixed sum, depending on how the PG is written. Enforcement usually starts with a demand letter, may proceed to a county court judgment, and ultimately can involve charging orders against personal assets including a home.
Limited vs unlimited PGs
A limited PG caps the guarantor's exposure at a stated amount or percentage. Common caps in UK SME lending are 20%, 30%, 50% or 100% of the loan, sometimes with specified maximum pounds figures. The cap is a contractual cap, not a moral one - the lender cannot go beyond it.
An unlimited PG has no cap. The guarantor is exposed to the full balance including interest, default charges and reasonable recovery costs. Unlimited PGs are common on larger deals and on some specialist products. They are not inherently abusive but they are materially more dangerous than capped PGs and should be entered with eyes open.
What a PG does not do
A PG does not turn the loan into personal debt from day one. While the company is paying, the loan is the company's liability, sits on the company's credit file, and does not appear on the director's personal credit file. The PG only converts into personal liability after enforcement.
A PG also does not transfer the asset bought with the loan. If the loan funded a van, the van belongs to the company, not the guarantor. The lender's right under the PG is to a sum of money, not to specific company property - that is a different concept (a secured loan with a charge over the asset).
Managing PG exposure
Cap the PG where you can. Even a partial cap is meaningfully better than unlimited. Lenders typically push back but a sensible cap is often negotiable, particularly on lower-risk profiles.
Split the PG across multiple directors where the company has more than one. This dilutes any single director's exposure and means each director's personal-asset footprint matters less.
Consider PG insurance, offered by specialist brokers. The premium is an annual cost but it can cover a meaningful portion of the exposure in enforcement.
Always take independent legal advice before signing. Some lenders require evidence of legal advice; even where they do not, the PG document is worth reading line by line with a solicitor.
Key points
- A PG is a personal backstop for company borrowing.
- Most UK unsecured SME lending of size requires at least one director PG.
- PGs can be capped (limited) or uncapped (unlimited); both are negotiable.
- PG insurance is available from specialist brokers.
- Take independent legal advice before signing.
Finance types that may be relevant
The product categories below are commonly considered for this situation. Suitability is subject to lender underwriting and your trading profile.
Unsecured Business Loan
Term loan or credit line repaid through fixed instalments.
Secured Business Loan
Larger bespoke cashflow or asset-backed debt.
Asset Finance
Finance to buy/refinance equipment, vehicles or machinery.
Related guides
Frequently asked questions
- Does a PG appear on my personal credit file?
- Usually not while the loan is performing. It can appear if the lender enforces and obtains a county court judgment against you personally.
- Can I cancel a PG?
- Not unilaterally. The PG ends when the loan is fully repaid and any continuing-guarantee clauses are released. Get written confirmation from the lender.
- Can a partner or spouse refuse to sign?
- If they are not a director or shareholder, lenders cannot compel them. Some lenders ask for spousal awareness on PGs that put a jointly-owned home at risk.
- Is a PG enforceable if the company dissolves?
- Yes, that is the entire point of the PG. The personal liability survives the company's dissolution.
Compliance note
Eligibility guidance only - not financial advice, not a loan offer, not a guarantee of approval.