When personal guarantees are non-negotiable in UK business finance

Personal guarantees are the most consequential clause in most UK SME finance facility letters. They are also the most misunderstood. Owners often hear "personal guarantee" and assume their house is at risk. Sometimes that is true; often it is not. This guide unpacks where PGs are genuinely non-negotiable, where there is room to push back, and what the structure actually means in practice.

What a personal guarantee actually does

A PG is a contract between the director (or directors) and the lender. If the limited company defaults on the underlying facility and cannot repay, the lender can pursue the guarantor personally for the outstanding balance, up to the PG cap. The PG sits separate from the limited liability protection of the company — that is the entire point. Without PGs, UK SME lending would price 3% to 8% higher across most products to reflect the credit risk.

Products where a PG is non-negotiable

Unsecured business loans above £25k

Almost every UK unsecured business loan above £25k requires a director PG. iwoca, Funding Circle, Fleximize and the high-street banks all take PGs as standard. The PG is usually unlimited up to the value of the loan, joint and several where there are multiple directors. Below £25k some products are PG-free, but the lender pool is smaller and pricing is wider.

Asset finance

UK asset finance — hire purchase, lease — almost always requires a director PG. The PG sits in addition to the asset itself acting as security. For mainstream commercial vehicles and plant the PG is typically capped at the residual exposure after the asset is repossessed and sold. For bespoke assets with thin secondary markets the PG cap is usually higher.

Bridging and development finance

UK bridging lenders typically take a PG from each named director or investor, even though the loan is secured against property. The PG sits on top of the legal charge as belt-and-braces. Most are unlimited up to the value of the loan plus enforcement costs.

Invoice finance

Invoice finance facilities almost always include a director PG and a deed of indemnity, particularly for any disputed invoices or non-payment by debtors. The PG cap is usually expressed as a percentage of the facility limit (often 25% to 100%).

Products where the PG is sometimes negotiable or absent

Merchant cash advances and revenue-based finance

Some UK MCA and RBF providers position as no-PG for facilities under £100k to £500k. Read the documents carefully — many still take a directors' undertaking or a personal liability clause in the side agreement. The difference between a PG and a directors' undertaking is mostly procedural; the practical exposure is similar.

Commercial mortgages on investment property

Commercial investment mortgages held in an SPV (special purpose limited company) sometimes sit without a director PG, particularly at LTVs below 60% with strong rental cover. Owner-occupier commercial mortgages almost always include a PG.

Business credit cards

Most UK business credit cards — Capital on Tap, American Express, Barclaycard Business — require a director personal liability, even on limited company accounts. Some larger corporate cards offered to established businesses with audited accounts above a turnover threshold sit without a personal liability.

How to read the PG clause in a facility letter

• Is the PG capped or unlimited? Most UK PGs are capped at the principal plus interest plus enforcement costs.
• Joint and several, or several only? Joint-and-several means the lender can pursue any one director for the full amount; several means each director is liable only for their share.
• What triggers enforcement? Usually a defined event of default and a demand notice with a defined cure period.
• Is there a sunset? Some PGs fall away once the facility is fully repaid; others survive for a period afterwards.
• Is there a cooling-off period? Some UK PGs require the director to take independent legal advice before signing.

Where there is room to negotiate

Most owners don't realise PG terms have any flex at all. Often they do — particularly on larger facilities with multiple lender options.

• Cap level: a 50% cap is sometimes available where the lender wants the business but the borrower pushes back.
• Several rather than joint-and-several: more common where there are multiple unrelated directors.
• Sunset clause: a 12 to 24 month tail rather than indefinite.
• Carve-outs: excluding the primary residence from PG enforcement is sometimes possible on smaller facilities.
• PG insurance: a third-party policy (Purbeck, others) covers a portion of the PG exposure for an annual premium.

When PGs become enforceable

A PG is enforceable when the limited company defaults and the lender has issued a formal demand. Typical default triggers are missed payments, material breach of facility covenants, formal insolvency proceedings or material adverse change. Lenders almost always pursue the company first, then move to PG enforcement only if recovery from the company is insufficient. PG enforcement can include court judgement against the director, attachment of earnings, bankruptcy petitions and forced sale of assets.

What is at risk under a PG

Under a UK PG, the lender can pursue the guarantor's personal assets — savings, equity in property, investments — up to the PG cap. Whether the family home is specifically at risk depends on ownership structure, spouse consent, joint tenancy versus tenants in common, and the size of any equity. Spouse consent at signing is one of the most important protections; without it, enforcement against a jointly-owned home becomes materially harder.

Common owner mistakes around PGs

1. Signing without reading the cap, sunset and joint-and-several terms.
2. Not seeking independent legal advice on facilities above £100k.
3. Forgetting the PG survives after the company is dissolved — old PGs continue to bite.
4. Treating PGs as a paperwork formality rather than a personal liability.
5. Not considering PG insurance even when the premium is small relative to the exposure.
6. Signing a PG on a facility refinance without checking the new PG replaces rather than supplements the old.