Glossary · UK
What is Personal Guarantee (Business Loan)?
A commitment by a company director or owner to personally repay a business loan if the company itself fails to do so.
Full Definition
A personal guarantee is a legal commitment given by a director, owner or other individual connected to a company, promising to personally repay some or all of a business loan or facility if the company itself is unable to. Lenders commonly ask for a personal guarantee when lending to small or newly formed limited companies that lack a long trading history or substantial assets of their own, since limited company status normally shields a director's personal assets from the company's debts -- a personal guarantee deliberately overrides some of that protection for the specific facility it covers. Guarantees can be unlimited (covering the full outstanding debt plus interest and costs) or capped at a set amount, and they may also be secured against a specific personal asset such as the director's home, in which case the lender can potentially seek repossession or a charge over that asset if the guarantee is called in. Before signing, directors are usually strongly advised to take independent legal advice, understand exactly what is covered (including whether it extends to future borrowing under the same facility), and check whether the guarantee is released once the loan is repaid or remains in place indefinitely; some lenders will also require guarantor insurance or a joint-and-several guarantee where multiple directors are each liable for the full amount, not just their proportional share.