Personal guarantees on business loans: the risks explained

A personal guarantee makes you, as an individual, responsible for repaying a business loan if your company cannot. It removes the protection of limited liability for that debt, so your home, savings and other assets can be pursued. Read the terms carefully and take independent legal advice before you sign one.

What is a personal guarantee?

A personal guarantee is a legally binding promise to a lender that you will repay a business’s debt if the business does not meet the terms of its finance agreement. The Insolvency Service’s guidance on personal guarantees, updated 20 May 2026, says it “could expose the director’s personal assets to potential claims”.

Guarantors are usually directors or shareholders, but can also be a family member or friend. Lenders, landlords and suppliers may all ask for one.

Why do lenders ask for one?

Lenders ask for guarantees because a limited company is a separate legal person, so its owners are not usually liable for its debts. UK Finance’s briefing, published 10 June 2025, says that without one, an owner “could simply walk away from their company and the debts they had incurred”.

Guarantees are most common when a business is new, has little trading record, or has few assets to offer as security. In return, GOV.UK says a lender may offer better terms, such as a lower interest rate.

What are the risks?

The main risk is that a business debt becomes your personal debt. GOV.UK warns that “your personal assets such as your home, car, savings and investments could be used” and that “you may be declared bankrupt” if they do not cover what you owe.

• Your liability may be uncapped. An unlimited guarantee covers the whole debt plus interest and costs.
• It may cover future borrowing. An “all monies” clause extends the guarantee to present and future debts, not just the loan you signed for.
• Co-guarantors may not share the load. Joint and several liability lets the lender pursue any one guarantor for everything.
• It outlasts your role. Resigning as a director does not usually end the guarantee.
• It can bind your estate. The lender can claim against a guarantor’s estate after death.

Key terms to look for

These are the terms UK Finance says you will most often see in a guarantee.

What happens if the guarantee is called in?

The lender can demand payment from you once the business breaches its finance agreement. If the guarantee includes an indemnity, the lender does not need to claim from the business first.

UK Finance says lenders will try to agree a repayment plan based on affordability, and that insolvency proceedings are typically a last resort. Repossessing a home to repay a guarantee is described as “rare”, and the lender must first establish the debt through the courts.

Time limits depend on the form of the document and where you live:

• England, Wales and Northern Ireland: 12 years for a deed, 6 years for a contract
• Scotland: 5 years

How do you end a personal guarantee?

A guarantee usually lasts until the lender agrees to release you or the agreement’s own terms end it. It does not expire after a set time.

1. Read the guarantee for a right to give notice to discontinue it.
2. If there is one, give notice promptly to limit liability from that date.
3. If not, ask the lender to release you; it may ask for a replacement guarantor.
4. Get written confirmation of any release.

If you leave a company, deal with any guarantee at the same time as your resignation. See how to remove a director.

Are there loans without a personal guarantee?

Some government-backed lending limits what can be taken. When the Growth Guarantee Scheme launched in July 2024, ICAEW reported that lenders could take personal guarantees at their discretion, but “Principal Private Residences cannot be taken as security within the scheme”. We could not load the British Business Bank’s own pages on 6 November 2026, so check current terms with the lender.

Asset-backed options, such as asset finance and invoice finance, may rely on the asset or invoices as security, though some lenders still ask for a guarantee.

What to do before you sign

Use this checklist before agreeing to any guarantee.

• Confirm whether it is limited or unlimited, and the maximum you could owe.
• Check for “all monies”, indemnity and joint and several wording.
• Ask whether it is secured on your home.
• Ask how and when you can be released.
• Consider personal guarantee insurance, which GOV.UK notes is available.
• Take independent legal advice; UK Finance “strongly” recommends it.

Personal guarantees are one of several ways directors become personally liable. Overdrawn director’s loan accounts and director duties can also put personal assets at risk.

Frequently asked questions

Can a lender take my house under a personal guarantee?

Yes, if you cannot otherwise pay. GOV.UK lists your home among the assets that could be used, though UK Finance says repossession for a guarantee debt is rare and needs a court process.

Does a personal guarantee end when the company goes into liquidation?

No. GOV.UK says you are responsible for any money owed by your company that you have personally guaranteed, so the lender can still pursue you after the company fails.

Does resigning as a director end my personal guarantee?

Not usually. UK Finance says guarantees generally remain in effect after a director leaves unless the terms say otherwise or the lender agrees to release you.

What is the difference between a limited and an unlimited guarantee?

A limited guarantee caps your liability at a stated amount, plus costs. An unlimited guarantee covers the whole debt, interest and costs.

Who can I complain to about how a guarantee was enforced?

Complain to the lender first. If you are unhappy with its response, you may be able to take the complaint to the Financial Ombudsman Service.