What is a personal guarantee?
A personal guarantee is a promise from a business owner or director to personally repay the loan if the business can’t. In simple terms, if your business is unable to meet the repayments, the lender can pursue your personal assets to recover what’s owed.
This gives lenders added reassurance, especially with fast business loans where decisions are made quickly and the risk is higher.
What happens if you can’t repay your business loan?
If your business struggles to repay the loan, and you've signed a personal guarantee, you become personally liable. That means the lender can:
Take legal action against you
Claim money from your personal finances
Potentially force the sale of personal assets to settle the debt
It's important to be aware of the risk before signing anything, and only borrow what you know you can afford to repay.
Who needs to provide a personal guarantee?
Typically, directors of limited companies or owners of small businesses are required to provide a personal guarantee – especially if:
The business is new or has limited trading history
You’re applying for an unsecured small business loan
The loan amount is significant
Even with a quick business loan, lenders want confidence that the money will be repaid – and a personal guarantee offers that security.
Typically lenders only need a personal guarantee from directors making up 50% of total shareholding, so sometimes only one personal guarantee is required, rather than one from each director. But more security can sometimes mean a better deal – if multiple directors are happy to sign a personal guarantee, the lower the rate and longer the term might be.
What happens when the loan is repaid?
Once your small business loan is fully repaid, the personal guarantee ends automatically. There’s no further obligation. It’s a clean break, and you can move forward knowing you've met your financial commitment.
A personal guarantee is a serious commitment, but it can also open doors to funding that helps your business grow. If you're applying for a business loan and are asked to sign a guarantee, make sure you understand the risks and have calculated what level of repayments your business is able to make.