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What a personal guarantee commits you to
When you sign a personal guarantee, you agree to satisfy the company's debt personally if the company defaults and the lender cannot recover in full from company assets. An unlimited guarantee exposes your personal property, savings, investments, and — in some circumstances — your home, particularly if a charge over the property is taken alongside the guarantee.
A personal guarantee survives the winding up of the company. It is not extinguished by administration, liquidation, or dissolution. The lender can pursue you as guarantor independently of, and concurrently with, proceedings against the company.
Joint and several liability
Where two or more directors each sign a guarantee, the obligation is typically joint and several. This means the lender can pursue any one guarantor for the full amount — it need not apportion the debt between guarantors or pursue all of them simultaneously. A guarantor who pays more than their share may have a right of contribution from co-guarantors, but that is a separate legal matter between individuals.
Directors should understand that co-guarantors' financial positions affect their own exposure. If a co-director leaves the business or becomes insolvent, the remaining guarantor may face the full liability alone.
Negotiating a personal guarantee
Personal guarantees are negotiable, particularly with alternative lenders. Directors should aim to limit the guarantee by amount (a cap at, say, 50% of the facility), exclude certain personal assets by agreement, and include a release mechanism tied to the company meeting agreed financial milestones.
- Request a 'guarantee and indemnity' document in advance and take independent legal advice before signing
- Seek to exclude your primary residence if it is not being offered as specific security
- Confirm the guarantee crystallises only on formal demand, not on technical covenant breach
- Negotiate a sunset clause: the guarantee reduces pro-rata as the loan amortises
Frequently asked questions
Can a personal guarantee be enforced after a company enters liquidation?
Yes. Liquidation of the company does not discharge a personal guarantee. The lender may pursue the guarantor once the company's assets are exhausted, or concurrently with the liquidation process.
Is independent legal advice mandatory before signing a personal guarantee?
It is not always a legal requirement, but most reputable lenders will strongly recommend it and some will require evidence that it has been obtained. Without independent advice, a guarantor may have grounds to challenge enforceability in limited circumstances — but this is not a reliable protection.
Funding for UK limited companies
Credicorp lends to your company, not to you personally — short-term working capital with no personal guarantee. See what your business could access.