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DSCR = net operating income ÷ total debt service. Lenders typically look for 1.25 or higher.
What you are actually signing
A personal guarantee is a legally binding promise that you, personally, will repay a company loan if the company cannot. Sign it and the lender can pursue your savings, and in some cases your home, for a debt that was supposed to belong to the business.
How it undoes limited liability
Incorporating as a limited company is meant to cap your loss at what you put in — that is limited liability. A personal guarantee deliberately overrides it for that specific debt. You keep limited liability for everything else, but not for the guaranteed loan.
What happens on default
If the company defaults and the debt is guaranteed, the lender first pursues the business, then calls on you. That can mean demands against your personal accounts and, where the guarantee is secured on property, your home. It is the scenario the guarantee exists to enable.
How to avoid one
Borrow from a lender that does not require a personal guarantee, so the debt stays with the company. Your business must be able to service the loan on its own — see no personal guarantee loans. For most solvent, trading companies, that is achievable and far safer.
Keep the debt with the company
Check your company's cash covers the loan, then borrow without putting yourself on the line.
Credicorp lends to your company, not to you personally, and takes no personal guarantee. See indicative terms on business loans, or apply online in minutes.
Frequently asked questions
What does a personal guarantee commit me to?
To repay a company loan personally if the company cannot. The lender can pursue your savings and, where the guarantee is secured on property, your home — for a debt that was meant to belong to the business.
Does a personal guarantee cancel limited liability?
For that specific debt, effectively yes. It overrides the limited liability incorporation gives you, though you keep that protection for everything else. It is why a personal guarantee is such a significant thing to sign.
How can I avoid signing a personal guarantee?
Borrow from a lender that does not require one, so the debt stays with the company. This works when your business can service the loan on its own cash flow, which most solvent trading companies can.
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