If you are looking to borrow money for your business, it’s very important to understand the risks attached to signing a personal guarantee. While PGs are common in the UK lending market, they can have serious implications for your personal assets and overall financial security.
What is a Personal Guarantee?
A personal guarantee means you, as a business owner or director, agree to be personally liable for a business loan or credit facility. If the business cannot repay, the lender can pursue you personally (your home, savings, other personal assets) to make good the debt.
According to one recent industry standard review, roughly one-third of business loans to limited companies in the UK use a personal guarantee.
And yet many SME directors do not fully understand what they are signing up to. More than half said they didn’t know the full liability involved when they signed the guarantee.
Why This Matters to You (and Your Business)
For your business to grow, you may need extra capital, whether to invest in new equipment, expand operations or cover working capital. But when you sign a personal guarantee you’re putting your personal financial position on the line. If things go wrong, this could mean personal tax liabilities, asset recovery, or insolvency risk – and that’s a burden you don’t want.
Lenders increasingly rely on PGs, even for smaller loan amounts and younger companies, which means many business owners may unwittingly be accepting greater risk than they realise. For example, a recent industry monitor found the average loan backed by a personal guarantee jumped 42 % year-on-year, showing increased reliance on this form of security.
Key Questions to Ask Before You Sign a PG
- Exactly what liabilities you are taking on: Is the guarantee limited in amount or unlimited, are you guaranteeing only this facility or all debt the business owes the lender?
- What assets you are pledging: Is it your home, savings, personal pension, or other personal property?
- Whether there are exit provisions: Can the guarantee be released when the business reaches certain performance criteria or assets are sold/transferred?
- Is there personal guarantee insurance (PGI) available? Some firms offer insurance that covers you in certain circumstances if a PG is called.
- Do you fully understand the default triggers? What counts as default, how quickly can the lender enforce and which costs/interest are recoverable from you personally?
Practical Steps You Should Take Now
- Review any outstanding loans – Check which of your loans have a personal guarantee attached, what the guaranteed amount is and whether your liability remains active.
- Keep good records – Ensure you have the loan/guarantee documentation easily accessible and that you understand the terms. If directors change, or the business structure evolves, the guarantee may still remain in effect.
- Discuss strategy with your accountant – We can help assess the risk profile, model worst-case scenarios (what happens if the business fails to repay) and consider alternatives (asset-based lending, unsecured finance, or risk-sharing models).
- Explore insurance or alternative funding – If you are about to take on a new loan and a PG is required, we can review PG-insurance options or negotiate with the lender for a more limited guarantee.
- Plan for growth and resilience – Make sure your business has good cash-flow forecasting, contingency planning and that you are comfortable with any personal liability you are taking on. Not just for today, but if the business hits trouble tomorrow.
In an environment where lenders are increasingly asking for personal guarantees, even for smaller loans. The potential risk to you personally is non-trivial. A guarantee may be the price of obtaining finance, but the cost is more than just interest or fees it’s your personal financial security.
By proactively reviewing your borrowing, understanding the guarantee you are giving and working with your accountant here at Accountants247 Golders Green to model the implications, you can borrow with more confidence and protect both your business and your personal future.
If you’d like personalised advice, we’d be happy to review your lending arrangements and the impact of any personal guarantees. Just get in touch with our friendly team in Golders Green.
