Personal Guarantees Explained: What Every UK Director Should Know Before Taking Out a Business Loan

A practical guide to personal guarantees in UK business loans, covering directors’ liability, Growth Guarantee Scheme protection, and 5 risk-reduction tips.

Back in March 2024, the Financial Conduct Authority (FCA) announced an investigation into the use of personal guarantees (PGs) and directors’ guarantees (DGs) in small business lending.

Since then, it’s been a growing topic of conversation and one that I regularly discuss with company directors when arranging business loans or asset finance.

This article isn’t legal advice. It’s simply a guide to help UK business owners understand what personal guarantees are, why lenders use them, and how schemes like the Growth Guarantee Scheme (GGS) can reduce the risk for directors.

What is a Director Personal Guarantee (DPG)?

A personal guarantee also referred to as a Directors Guarantee is an agreement where a company director  agrees to personally repay a business debt if the company can’t.

From a legal standpoint, a limited company is designed to protect its directors. The company’s debts are its responsibility, not yours.

However, by signing a PG, you effectively entwine your personal liability with that of the business.

That might sound intimidating, but from a lender’s perspective, it provides reassurance that you have “skin in the game.” It shows personal commitment and can make approval more likely, especially for unsecured borrowing.

When Are Personal Guarantees Most Common?

You’ll most often come across PGs in the following types of finance:

• Unsecured business loans – It’s common for lenders to request personal guarantees from at least 50% of the business owners or directors, and often from all key shareholders, depending on the structure and exposure.
• Working capital or revolving credit facilities – lenders often look for personal guarantees because cash flow can fluctuate. However, for specialist VAT or Corporation Tax loans under around £150,000, a PG isn’t always required. Particularly where the business has solid financials, a clear repayment plan, and a good trading history.
• Short-term loans – these products are classed as higher risk, so a personal guarantee from the director is usually required, but not always. 

Where PGs are less common:

• Asset finance – lenders have the asset itself as security (e.g., vehicles, equipment, or machinery). For established, profitable UK businesses with a solid trading record, a personal guarantee often isn’t required, as the lender already holds the asset as collateral.
• Invoice finance – security often comes from your debtor book. Some funders do still require personal guarantees on Invoice Factoring and Discounting facilities.
• Growth Guarantee Scheme (GGS) loans – these still fall under the same credit and security scrutiny as other business loans, but personal guarantees are treated slightly differently. While a PG can still be requested, your primary residence cannot be used as security. (More on this further down.)

How the Government Growth Guarantee Scheme (GGS) Can Help

Under the Growth Guarantee Scheme (GGS), lenders can still request a personal guarantee, but your main home cannot be taken as security.

That protection matters as it gives directors confidence to borrow responsibly while providing lenders with a government-backed comfort layer.

It’s important to understand, however, that the 70 % guarantee is to the lender, not to you as the borrower. The Government effectively supports the lender if a business defaults, you’re still 100 % liable for the loan in the first instance, and the lender will come to you for repayment before making any claim for the 70 % back from the Government.

So, while the GGS makes lending more flexible and accessible, it doesn’t remove your responsibility. It simply reduces the lender’s risk, which can sometimes result in better terms or lighter security requirements compared with standard unsecured loans.

You can find more useful content and information about the Growth Guarantee Scheme on my YouTube channel 

👉 Tip: Always ask your broker or lender what security is being requested, and how the GGS rules apply in your case.

5 Ways to Reduce Your Personal Guarantee Exposure (Without Killing the Deal)

Even if a PG is required, there are practical ways to limit your risk:

1. Negotiate a capped amount (where possible) This tends to apply only to specialist or bespoke finance deals, where the lender is willing to agree a maximum liability rather than an unlimited personal guarantee. It’s not common, but can be achievable if your business is well-established, profitable, or offering additional security elsewhere.
2. Split guarantees across multiple directors if applicable. Most personal guarantees are joint and several, meaning each director can be held liable for the full amount if the other can’t pay. True “split” or limited guarantees, where liability is capped to each person’s share (e.g. 50/50), are less common and usually seen only on specialist or negotiated business loans.
3. Set a review or expiry trigger (e.g. after a refinance or after x repayments).
4. Ensure wording is clear. Know exactly what’s covered (principal, fees, interest, etc.).
5. Consider Personal Guarantee Insurance (PGI). It’s now possible to insure part of your personal guarantee to reduce your exposure if the business ever defaults. Policies can cover a percentage of the liability and are designed specifically for UK directors and business owners. I work closely with Purbeck Personal Guarantee Insurance. One of the UK’s leading specialist providers.

Are Personal Guarantees Enforceable?

It’s a question I’m asked a lot, and the short answer is yes, in most cases they are.

In the UK, a personal guarantee must be in writing to be valid. When properly drafted and signed (including electronic signatures with the right checks in place), it’s generally legally enforceable.

There have been the odd cases around misrepresentation or unfair terms, but these are the exception, not the rule. The safest approach is to understand your obligations clearly before signing, rather than trying to challenge them later.

Personal Guarantee FAQs

Final Thoughts on Personal Guarantees for Business Owners

Personal guarantees can feel like a big commitment, and they are.

But they’re also part of the reality of commercial lending, especially when borrowing is unsecured. The key is to understand what you’re agreeing to, ensure the structure makes sense for your business, and explore all your options — from Unsecured Business Loans and Asset Finance to Growth Guarantee Scheme loans.

Need Help Understanding Your Options?

James Murray Finance helps UK business owners arrange business loans, asset finance, and refinancing solutions every day, with clear explanations around what’s required and how to keep personal risk to a minimum.

If you’re exploring finance and want to know when a personal guarantee might apply (and when it might not), get in touch today.

Thanks for reading

James

Keep in touch with James Murray Finance for free business and car finance insights and updates. Subscribe to the blog via LinkedIn HERE or follow on social media. 

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Disclaimer: This blog post is intended for informational purposes only and does not constitute financial advice. All information is collated at time of writing and the best efforts have been made to ensure accuracy.