Guarantee

In plain terms

A guarantee is a contract in which one party — the guarantor — promises a lender that it will step in and repay if the actual borrower fails to. It is a backstop. The borrower remains primarily liable; the guarantor's obligation is secondary, triggered only when the borrower defaults.

Guarantees come in several shapes. A corporate guarantee is given by another company, often a parent or sister company in the same group. A personal guarantee is given by an individual, typically a director, who puts their own assets on the line. A cross-guarantee binds several group companies to cover each other's debts. The wording matters enormously: an unlimited guarantee exposes the guarantor to the full debt plus interest and costs, while a capped guarantee fixes a ceiling.

Why it matters to your business

For a director, the question is rarely "is there a guarantee?" but "who is giving it and how far does it reach?" A guarantee transforms a company debt into a personal or group-wide exposure, which can follow you well beyond the life of the loan or even the company.

Credicorp lends to the UK limited company itself, not the director personally — so there is no personal guarantee required on our short-term working-capital facilities. The company is the borrower and the company is liable. That keeps your home and personal savings outside the lending relationship. If you are comparing offers, read the guarantee clause first: two facilities with identical headline rates can carry wildly different personal risk. See no-personal-guarantee loans for how this works in practice.

An example

Suppose Ridgeway Joinery Ltd borrows £40,000 of working capital. Under a typical high-street arrangement, the bank asks the director to sign an unlimited personal guarantee. Eighteen months later the company hits trouble and cannot repay £18,000. The lender can now pursue the director personally for that £18,000 plus interest and legal costs — potentially against their house.

By contrast, a facility lent purely to the company with no personal guarantee leaves the director's personal estate untouched. The lender's recovery is limited to the company and any security the company itself has pledged. Same loan, very different downside.