Personal Guarantees on Business Loans
What UK directors need to know before signing — and what options are available when a guarantee is called.
Has a lender threatened to call your personal guarantee?
Once enforcement begins, options narrow quickly. Understanding your position — and acting — is essential. A personal guarantee does not disappear when a company enters insolvency.
What Is a Personal Guarantee?
Limited liability normally means directors are not personally responsible for company debts. A personal guarantee is a specific legal exception to that protection.
When a director signs a personal guarantee for a business loan, they are making a legally binding promise that if the company cannot repay the debt, they personally will.
This is a significant commitment. Limited liability — the fundamental principle of a limited company — normally means a director's personal assets are not at risk for company debts. A personal guarantee is an explicit, contractually agreed exception to that protection.
Personal guarantees are common in business lending, particularly from alternative lenders. They are sometimes presented as a routine part of the application process. The full implications are not always made clear at the point of signing.
What a Personal Guarantee Covers
- The full outstanding loan balance at the time of default
- Accrued interest and charges as defined in the loan agreement
- The lender's legal costs in some agreements
- The full remaining factor-rate total on MCA/revenue-based facilities (not just the principal)
What It Does Not Cover
- Limited liability protection does not apply to amounts covered by the guarantee
- The guarantee is not voided by company insolvency
- Spouse or co-signer may also be affected if they countersigned
Which Lenders Use Personal Guarantees
Personal guarantees are widely used across the business lending market, particularly among alternative and specialist lenders. The following information is provided for factual context.
Alternative Lenders — Personal Guarantees
A significant proportion of alternative lending in the UK market includes personal guarantee requirements as a standard condition of funding. Lenders that have commonly required personal guarantees as part of their lending terms include:
Note: Lending terms change. Always review the specific agreement you have signed. This list reflects commonly reported market practice and should not be relied upon as a definitive or current statement of any lender's terms.
Second Charges Over Directors' Homes
Some lenders go beyond a personal guarantee and register a second charge directly against a director's residential property as security for a business loan. A second charge is registered at the Land Registry and gives the lender a legal security interest in the property.
What a Second Charge Means
- The lender has a registered legal claim against your property
- Visible to your mortgage lender and any future buyer
- On default, the lender can apply to court for a charging order and, in some circumstances, a sale
- Removal requires the lender's consent or full repayment
Note: Always review your specific loan documentation. The presence or absence of a second charge will be stated in your loan agreement and can be verified via the Land Registry.
What Happens When a Personal Guarantee Is Called
The enforcement process typically follows a sequence. Understanding it helps directors assess the urgency of their position.
Company Default
The company fails to make a scheduled repayment or breaches the loan agreement. Most agreements treat a single missed payment as a default event, allowing the lender to demand the full outstanding balance immediately.
Formal Demand to the Guarantor
The lender issues a formal written demand to the director personally, requiring payment of the outstanding sum. This is typically sent by recorded delivery and sets a short deadline — often 7 to 28 days — for payment.
County Court Proceedings
If unpaid, the lender issues County Court proceedings against the director personally. A CCJ can be obtained quickly and has significant consequences — it appears on the director's personal credit file for six years and enables further enforcement steps.
Enforcement Against Personal Assets
Armed with a CCJ, the lender can pursue enforcement — including charging orders over property, third-party debt orders over bank accounts, and attachment of earnings. Where a second charge exists, the lender is already secured against a specific property.
Bankruptcy Petition
In cases where the debt is substantial and other enforcement is insufficient, the lender may petition for the director's personal bankruptcy. This is the most serious personal outcome and requires immediate professional advice if threatened.
At Every Stage, Earlier Is Better
A demand letter is the point at which most directors first seek advice. In reality, the best outcomes are typically achieved before that point — when the company is struggling to service the loan but has not yet defaulted. At that stage, lender negotiation, restructuring, and other options all remain available.
Get Confidential AdviceOptions When Facing a Personal Guarantee Demand
Receiving a demand does not mean the outcome is fixed. There are often options available — but they require prompt action.
Negotiate With the Lender
Lenders may prefer a negotiated settlement over the cost and delay of litigation. A partial payment, an agreed repayment plan, or a settlement at a discount to the full claim are all possibilities — particularly where the lender's recovery prospects are uncertain.
Company Restructuring
If the company can be restructured or enter a CVA, this may provide a mechanism for addressing the underlying debt — and potentially the personal guarantee — through a supervised process. The personal guarantee may be addressed as part of wider negotiations.
Personal Voluntary Arrangement
A Personal Voluntary Arrangement (PVA or IVA) allows an individual to reach a formal agreement with creditors — including those holding personal guarantees — to repay debts in a structured way. This can protect personal assets including property.
Challenge the Guarantee
In some circumstances, personal guarantees can be challenged — for example, if the director was not properly advised, if the guarantee was signed under undue influence, or if the terms differ materially from what was represented. Legal advice is essential to assess whether a challenge is viable.
Manage the Legal Process
If a CCJ is threatened or issued, there are steps that can be taken — including filing a defence, applying to set aside a judgment, or negotiating a consent order. Acting promptly is critical: delays often reduce the options available.
Protect What You Can
Regardless of the outcome, there are often steps that can protect some personal assets. Professional advice should be taken before taking any action — including any transfer of assets — to ensure these steps are legally sound and do not expose the director to further risk.
Frequently Asked Questions
Common questions about personal guarantees on business loans
What is a personal guarantee on a business loan?
A personal guarantee is a legally binding commitment by a director (or other individual) to repay a business loan from their personal assets if the company fails to do so. Unlike limited liability, which normally shields directors from company debts, a personal guarantee pierces that protection for the specific facility covered. If the company defaults, the lender can pursue the guarantor personally for the full outstanding amount.
What happens when a personal guarantee is called?
When a lender calls a personal guarantee, they issue a formal demand to the guarantor for the outstanding amount. If unpaid, the lender can take legal action, obtain a County Court Judgment (CCJ), and pursue enforcement — including against personal assets such as savings, investments, or property. The process typically begins shortly after a company default, though timelines vary by lender and loan agreement.
What is the difference between a personal guarantee and a second charge?
A personal guarantee is a contractual promise to pay. A second charge is a security interest registered against a specific property — typically a director's home. The first charge is usually the mortgage lender. The second charge gives the business lender a legal claim over the property in the event of default. Unlike a personal guarantee, a second charge is registered at the Land Registry and is visible to other lenders and buyers.
Can a lender take my home if I signed a personal guarantee?
If a personal guarantee is enforced and a CCJ is obtained, the lender can apply for a charging order over your property. If they also hold a second charge registered at the Land Registry, their position is further secured. In either case, the lender would typically need to obtain a court order to force a sale of your home. This is a serious but not inevitable outcome — many cases are resolved through negotiation or insolvency procedures before reaching this stage.
Can I remove a personal guarantee from a business loan?
Personal guarantees can sometimes be released through negotiation — for example, if the loan balance reduces to a level the lender considers adequately secured without the guarantee, or as part of a wider restructuring. However, lenders are under no obligation to release guarantees. In insolvency situations, a director's personal liability under a guarantee survives the company's insolvency — it does not disappear when the company is wound up or enters administration.
Concerned About a Personal Guarantee?
K2's team works with directors navigating company debt and personal exposure. A confidential conversation helps you understand your position and the options available.
Confidential consultation • No obligation • Investment partnership approach
Related Guides
Further reading for directors managing business debt and personal exposure
When Business Loans Become Unaffordable
Factor rate loans, merchant cash advances, and what to do when repayments exceed earnings
Directors' Duties & Responsibilities
Understanding your legal obligations when a company is in financial difficulty
Company Voluntary Arrangement
Formal debt restructuring that may address both company and personal guarantee obligations
Trading While Insolvent
Director liability risks — personal guarantees are one part of a broader picture