Understanding personal guarantees as a company director

Julie Palmer

Regional Managing Partner

Updated

8 June 2026

What is a personal guarantee and why do lenders require them?

A personal guarantee is a legally binding commitment by a company director (or other individual) to repay a business debt if the company is unable to do so. It gives the lender an additional route to recover their money beyond the company’s own assets, effectively removing the protection of limited liability for that specific debt.

Lenders require personal guarantees when they believe the company’s assets alone may not be sufficient to cover the money being borrowed. This is common for newer businesses without a strong trading history, companies with limited assets, or where the borrowing amount is significant relative to the company’s balance sheet.

If more than one director signs a personal guarantee, they are usually “jointly and severally liable.” This means the lender can pursue any one director for the full amount owed. Essentially this means that they don’t have to split the claim equally. In practice, lenders tend to target the director with the most accessible personal assets.

“Personal guarantees are one of the most common sources of anxiety for directors who call us. Many signed a personal guarantee years ago, usually when the business was doing well and it felt like a formality, and have now genuinely forgotten the terms, or even that it exists at all. The first thing we do is review the guarantee document itself, because the terms often aren’t what the director expects.”
—  Julie Palmer, Partner, BTG Begbies Traynor

As a company director, you may have to provide a personal guarantee to secure business borrowing or underpin a commercial tenancy agreement. At the time, you might not think much of it. However, if you default on the payments or the business fails and it cannot repay the debt, that personal guarantee could potentially put your home and other personal assets at risk. 

What are the different types of personal guarantee?

• Bank loan guarantees — This is the most common type of personal guarantee. These are often signed when a company first takes out borrowing, and can be easily forgotten as the loan becomes routine. Bank loan personal guarantees may be limited (capped at a specific amount) or unlimited (covering the full outstanding balance plus interest and costs).
• Commercial lease guarantees — Personal guarantees are often required by landlords to secure the lease on a commercial property. These can be particularly expensive because they often cover the full remaining term of the lease, not just the current arrears. For a detailed guide to lease-specific personal guarantees, see our article on understanding commercial leases and personal guarantees.
• Invoice finance and asset finance guarantees — These are common in factoring, invoice discounting, and hire purchase arrangements. Directors often don’t realise these include a personal guarantee, as it may be embedded within the facility terms rather than presented as a separate document.
• Supplier guarantees — These are less common, but some suppliers require a director’s personal guarantee before extending trade credit, particularly to newer or smaller companies.

What happens to a personal guarantee if your company becomes insolvent?

When a company enters a formal insolvency process, such as a Creditors’ Voluntary Liquidation, administration, or compulsory liquidation, this is typically classed as a “determining event” under the terms of the personal guarantee. The lender will write to you confirming that the guarantee has been triggered and that the outstanding amount is now payable by you personally. In most cases, the full balance becomes immediately repayable.

It’s important to understand that a personal guarantee is a separate contract between you and the lender. It is not a company debt, instead it now becomes your personal debt. This means it is not dealt with as part of the company’s insolvency process. The liquidator or administrator has no authority over it, and the lender can pursue you directly regardless of what happens to the company.

This also means that a personal guarantee survives liquidation, dissolution, and phoenixing. Starting a new company does not release you from a personal guarantee you signed for the old one.

What can the creditor do if you can’t clear the personal guarantee?

If you cannot pay the full amount when the guarantee is called in, the creditor has several enforcement options. They can issue a statutory demand, giving you 21 days to pay before they can petition for your personal bankruptcy.

Alternatively, they can apply for a County Court Judgment (CCJ) or High Court Judgment, which can lead to bailiff action or a charging order against your property. In serious cases, the creditor can petition for your personal bankruptcy directly.

“The enforcement process can feel overwhelming, but it’s important to know that creditors don’t always push for the maximum outcome. In our experience, most would rather negotiate a settlement than push a director into personal bankruptcy as a bankrupt director is unlikely to repay anything meaningful. Understanding this gives you leverage.”
- Julie Palmer, Partner, BTG Begbies Traynor

How enforceable are personal guarantees?

As long as the guarantee is in writing and is signed by a guarantor with the intention and capacity to sign it, there won’t usually be any problems for the lender in enforcing the personal guarantee. Even if you resign from the company or close it down, the lender will still usually be able to enforce the guarantee.

If the company defaults on a finance agreement or enters into liquidation proceedings, the lender will usually write to the guarantor to request the payment. If you do not make the payment, the lender can seek a court judgment to enforce the guarantee, and at that point, your personal assets could be at risk. 

When are personal guarantees unenforceable?

An unenforceable personal guarantee is one the lender cannot call in when the company is unable to pay a debt. Several factors can make a personal guarantee unenforceable:

• You were misled - The creditor did not give you the full facts or there was an element of misrepresentation or fraud that affected your decision to sign the guarantee. 
• Key information was omitted - You did not receive key information that has a direct impact on your relationship with the lender. 
• There’s an illegality - The transaction the guarantee stems from or the terms contained within it are illegal in some way. 
• It was not executed properly - The guarantee has signatures missing, there was no witness present when you signed it or it contains ambiguous language.
• The facility has changed - The lending facility changed significantly in the time between you signing the guarantee and the creditor’s claim, and you were not informed about the changes.
• A condition has not been met - A condition was included in the contract that has not been fulfilled.
• The statute of limitations has passed - The creditor does not commence proceedings to recover the debt in time. They have six years in most debt recovery cases but 12 years if the personal guarantee is considered a deed.  
• The terms are unfair - The contract contains a term that is unfair according to the Unfair Terms in Consumer Contract Regulations (1999). In this case, you could challenge the guarantee in court. If the creditor thinks they might lose and doesn’t want to incur the legal costs, they may choose not to enforce the guarantee. 
• The terms are unclear - You could have grounds to challenge the guarantee in court if any of the terms are ambiguous or unclear. 

Most lenders now require all prospective guarantors to seek independent legal advice before signing on the dotted line. If you receive legal advice, you’re less likely to be able to successfully challenge the guarantee. 

Can you negotiate a personal guarantee settlement?

Yes and in many cases, you should. When a personal guarantee is called in, the full amount is technically payable immediately. But in practice, creditors are often willing to negotiate a settlement for less than the face value, particularly where:

• The director has limited personal assets and a full recovery is unlikely
• The cost and time of enforcement (such as court proceedings and the bankruptcy petition) would be disproportionate
• The director can offer a lump sum quickly, avoiding a drawn-out process
• There are grounds to challenge enforceability, making the outcome of litigation uncertain

Can I get out of a personal guarantee?

If a personal guarantee you have provided has been called in and you think it’s enforceable based on the points in this article, there are some practical steps you can take:

• Check for personal guarantee insurance - Personal guarantee insurance can cover up to 70% of the liability of new and existing finance agreements. 
• Negotiate - Lenders will prefer to avoid court action if they can. If you can’t afford to pay what you owe upfront, try to negotiate a lower amount or ask for more time to pay. 
• Enter into an Individual Voluntary Agreement (IVA) - Entering into a formal debt agreement called an IVA will allow you to pay what you owe over a typical period of five years. It will have a serious impact on your credit score but could help to protect your assets. 

How to protect yourself

1. Review every personal guarantee you’ve signed. Many directors we speak to have multiple personal guarantees across different lenders and don’t have a clear picture of their total exposure. Gather the documents and check the terms, caps, and whether anything has been varied since you signed.
2. Understand whether your personal guarantee is limited or unlimited. A limited guarantee caps your liability at a specific amount. An unlimited guarantee can cover the full outstanding balance plus interest, costs, and fees which can be significantly more than the original borrowing.
3. Check whether the underlying agreement has changed. If the lender has altered the terms of the loan, facility, or lease without your written consent as guarantor, this may invalidate the guarantee. This is one of the most common grounds for challenge.
4. Don’t pay a personal guarantee claim without taking advice first. Once you pay, it’s very difficult to recover the money. There may be grounds to negotiate a lower settlement or challenge enforceability altogether.
5. Be careful about preference payments. If your company pays off a debt that you’ve personally guaranteed shortly before entering formal insolvency proceedings, the liquidator may reverse that payment as a preferential transaction, leaving you still liable under the personal guarantee but with the company’s payment clawed back.
6. Seek advice before a determining event occurs. If your company is in financial difficulty and you have personal guarantees in place, getting advice now, before the company enters formal insolvency and the guarantees are triggered, gives you the most options.

How BTG Begbies Traynor can help

If you’re worried about a personal guarantee, don’t wait until it’s called in by the lender. Understanding your exposure now, and crucially understanding whether the guarantee is actually enforceable, puts you in a far stronger position.

Call your nearest BTG Begbies Traynor office to arrange a free, confidential consultation. We’ll review your personal guarantee documents, assess your exposure, and explain your options clearly.