For many SME directors, signing a personal guarantee is just a part of doing business. Whether securing finance, leasing premises, or refinancing property, lenders often require directors to put personal assets on the line to move things forward.
At the time, it can feel routine. The business is trading well, the risk seems manageable, and the focus is on growth. But not all personal guarantees carry the same level of exposure. Some come with far greater personal consequences than others, especially when economic conditions change or trading becomes unpredictable.
In this blog, we look at where directors face the highest risk when signing a personal guarantee, how different types of borrowing compare, and what directors can do to protect themselves.
Understanding personal guarantees and directors’ exposure
A personal guarantee is a legally binding commitment that makes a director personally responsible for a company’s debt if the business is unable to pay it. In many cases, that responsibility is not limited to a single asset or defined time period, meaning savings, investments, and property can all be exposed to lender claims.
Lenders rely on guarantees because they shift risk away from the business and onto the individual. For directors, this means the financial impact of a company failure may continue long after trading has stopped.
The real question for directors is not whether a personal guarantee carries risk, but how much risk it carries and where there is more exposure.
Commercial leases: long-term, often overlooked risk
Commercial leases are one of the most underestimated sources of personal guarantee exposure.
Many landlords require directors to sign a personal guarantee when a business takes on office, warehouse, or retail space. Unlike loans, these guarantees are often long-term, running for 5 to 10 years or more, have no clear upper limit and cover more than just rent. They are linked to service charges, legal fees, and other costs that continue to accrue over time.
If a business struggles or closes early, the director may still be personally liable for the remaining rent across the full lease term.
For directors, this creates a particularly high-risk situation: a long-term financial commitment with limited flexibility and little warning before costs escalate.
Business loans: concentrated but immediate exposure
Business loans are the most common reason directors sign a personal guarantee. Banks, alternative lenders, and finance providers often require guarantees for:
- Term loans
- Overdrafts
- Unsecured lending
- Asset finance
- Invoice finance
The risk here is more concentrated. If a loan defaults, lenders can act quickly to recover the debt directly from the guarantor. This can involve formal repayment demands, interest and penalty charges, and in some cases, legal action.
Mortgages and property finance: high values, personal impact
Commercial mortgages and property-backed borrowing often involve the largest financial exposure.
Directors may sign personal guarantees to secure:
- Commercial mortgages
- Property refinancing
- Development finance
- Buy-to-let structures linked to trading companies
These guarantees typically involve substantial sums and long repayment periods. If property values fall or rental income drops, lenders may still pursue the director personally for any shortfall. And because property finance often overlaps with family homes, retirement plans, and long-term security, the emotional and financial consequences can be severe.
Which personal guarantees carry the highest risk?
While every situation is different, risk typically increases where guarantees are:
- Long-term and difficult to exit (commercial leases)
- Large in value (property finance and mortgages)
- Enforced quickly (unsecured business loans)
- Poorly understood at the time of signing
Many directors only discover the full extent of what they’ve signed when a lender begins enforcement. At Purbeck, our experience shows that a lack of clarity around what was signed is a common issue, particularly where multiple agreements are in place.
Why directors often underestimate the risk
There are several reasons personal guarantee exposure is often underestimated. Periods of strong trading can create a false sense of security, while many directors assume that operating through a limited company provides full personal protection. Others believe guarantees are rarely enforced or sign agreements without taking independent advice.
Unfortunately, guarantees are designed to be relied upon. When businesses come under pressure, lenders use them as intended.
How Personal Guarantee Insurance reduces exposure
Personal Guarantee Insurance (PGI) provides directors with a financial safety net if a lender enforces a personal guarantee.
Purbeck’s PGI covers up to 80% of the guaranteed amount, helping to protect personal assets such as savings, investments, and property. For unsecured loans, the level of cover increases with each policy year on a stepped basis, providing greater protection the longer the policy is held.
PGI allows directors to manage risk sensibly and ensures that one business setback does not result in lasting personal financial damage.
Support beyond the policy
At Purbeck, our protection goes beyond insurance alone.
Through our Business Support Service, directors receive early access to expert guidance when financial pressure begins to build. This includes support with:
- Debt management
- Lender negotiations
- Credit control strategies
- Business recovery options
Taking action early can make a significant difference, particularly when guarantees are involved.
Why directors choose Purbeck
Purbeck is the UK’s leading specialist provider of Personal Guarantee Insurance, trusted by SME directors across a wide range of industries.
Our policies are:
- Fully FCA regulated
- Backed by A-rated insurer Markel International
- Tailored to individual directors and their borrowing
- Designed specifically around the realities of SME finance
If you’d like to understand your personal guarantee exposure or explore how PGI could protect you, get in touch with our expert team for tailored guidance and support.
