Personal Guaranteesguarantees

What is a Personalpersonal Guarantee?guarantee?

A Personalpersonal Guaranteeguarantee is a legally binding agreement that the director will personally repay a debt if the company fails to meet its financial obligations in relation to that debt. Providing a guarantee could expose the director’s personal assets to potential claims.

A Personalpersonal Guaranteeguarantee may be:

• secured: backed by a specific asset, meaning a charge against your property 

• unsecured: based solely on your own creditworthiness

• joint and several: multiple guarantors liable for the full debt

Why are Personalpersonal Guaranteesguarantees required?

Many lenders, landlords and suppliers request personal guarantees to reduce their risk. This is more likely when the company is newly formed, has a limited trading history, holds a poor or no credit rating, or when the transaction involves a significant amount of money.

Advantages and disadvantages of providing a personal guarantee

Advantages:

• agreeing to a personal guarantee could mean your company is able to obtain funding it may not otherwise have been able to secure

• with a personal guarantee the lender may offer better terms for the loan, such as lower interest rates

• accessing finance could help you achieve your business goals

Disadvantages:

• your personal assets such as your home, car, savings and investments could be used to settle that company debt

• if your personal assets are insufficient to cover the debt, you may be declared bankrupt

Things to consider

Understand the terms

You must fully understand the terms of a personal guarantee before agreeing to it. That includes how much you are personally liable for if your company can not pay the debt.

Personal guarantee insurance

Personal guarantee insurance policies are available which protect your personal assets if your company is unable to pay the debt.

As with any legal or financial decision, you should consider getting independent specialist advice before proceeding.

Read more about personal guarantees in the guide provided by UK Finance.

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