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Business Loan Personal Guarantees

Clear guidance on business loans with personal guarantees and how to protect yourself

Understand the risks of signing a personal guarantee for a business loan and how Personal Guarantee Insurance can help protect your personal assets. 

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What is a Personal Guarantee on a Business Loan?

A personal guarantee for a business loan is a legally binding agreement that makes you personally responsible for repaying the debt if your business cannot.

When a lender offers a business loan with a personal guarantee, they are asking the director, owner or business loan guarantor to pledge their personal assets as security. This is common with unsecured lending, start-up finance, growth funding and recovery loans.

If the business repays the loan in full and on time, the guarantee is never called upon. However, if you default on a business loan with a personal guarantee, the lender can pursue you personally for the outstanding amount.

This may include action against personal savings, investments or even your home.

For many SMEs, signing a business loan personal guarantee is the only way to secure vital funding. But it is important to understand exactly what you are agreeing to before you sign.

Why Purbeck
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Why Do Lenders Require a Business Loan Guarantee?

Many small and medium-sized businesses do not have substantial assets within the company itself. A personal guarantee business loan provides lenders with additional reassurance that the debt will be repaid.

The guarantee business loan structure reduces the lender’s risk. If the company fails, they still have a route to recover their funds.

Not all business loans require a personal guarantee, but they are particularly common where:

  • The business is relatively new

  • The company has limited trading history

  • The loan is unsecured

  • The borrowing amount is significant

Understanding whether your business loan requires a personal guarantee, and what that means for you personally, is essential before committing to the agreement.

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What Happens If You Default on a Business Loan With a Personal Guarantee?

A personal guarantee business loan default can have serious consequences.

If your business is unable to meet repayments and falls into arrears, the lender may:

  • Demand immediate repayment of the outstanding balance

  • Enforce the personal guarantee

  • Pursue recovery action against you as an individual

This means that defaulting on a business loan with a personal guarantee does not stop at the company level. The debt can transfer to you personally.

In some cases, directors may face:

  • Legal action

  • Charging orders secured against property

  • Insolvency or bankruptcy proceedings

Even well-run businesses can encounter unexpected challenges. Market changes, late payments from customers, supply chain disruption or economic pressure can quickly impact cash flow. When that happens, a business loan personal guarantee can expose directors to significant personal financial risk.

Case Studies
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The Benefits of Personal Guarantee Insurance

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Asset 34

Invest with confidence

Businesses need capital in order to succeed. PGI allows you to take out the loans you need to grow, all while protecting your personal assets.

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Asset 31

Protect up to 80% of your loan amount

Cover a significant sum and ensure that this bill doesn’t land at your feet if your business becomes insolvent.

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Asset 27

Secure your family’s future

Following insolvency, a demand made under the personal guarantee can have a detrimental impact on your personal assets. Don’t take the risk, find out about how Purbeck can help.

What you need to know about Personal Guarantee Insurance

Here’s everything you need to know about PGI before you decide to take out a policy.

Do small business loans require a personal guarantee?

Many small business loans require a personal guarantee, particularly unsecured lending or loans to newer businesses. Lenders use personal guarantees to reduce their risk if the business cannot repay the debt.

Do I have to personally guarantee a business loan?

Not always. Some secured loans rely on company assets instead. However, many lenders will require a personal guarantee for a business loan if the company does not have sufficient assets or trading history.

What is a personal guarantee for a business loan?

A personal guarantee for a business loan is a legal agreement where a director or owner agrees to repay the loan personally if the business defaults. It makes the individual, not just the company, liable for the debt.

Do all business loans require a personal guarantee?

No. The requirement depends on the lender, the loan type, and the strength of the business. However, personal guarantees are common for small and medium-sized enterprises.

Can a personal guarantee be enforceable for business loans?

Yes. A properly drafted and executed personal guarantee is legally enforceable. If a business loan personal guarantee is triggered following default, the lender can pursue the guarantor for repayment.

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