Many businesses can access funding, but only when the owner or director signs a Personal Guarantee. In this blog, we explain exactly what Personal Guarantees are, why lenders rely on them, and whether it’s possible to get a business loan without one.
As defined by the British Business Bank: a Personal Guarantee is a legally binding agreement between a finance lender and a business owner or director which states that the business owner or director will be personally liable for repaying the loan if the business defaults on loan repayments or becomes insolvent. This means that lenders can pursue the guarantor’s personal assets, such as property or savings, in the event of default or insolvency.
Most Personal Guarantees are unlimited, meaning the guarantor is liable for all capital, interest and fees outlined in the signed agreement.
Some Personal Guarantees are Partial or Limited Personal Guarantees, capping your liability at a fixed amount or percentage of the loan or funding limit, a common approach from invoice finance lenders and Community Development Finance Institutions (CDFI’s).
To put it simply, lenders need to manage risk. A Personal Guarantee takes the business’ liability, in the event of default or insolvency, outside of the limited liability framework of a limited company, providing another opportunity for the lender to recoup the capital, interest and fees they are owed.
If a business has a lack of trading history, poor credit or no assets to raise finance against, Personal Guarantees provide additional comfort to lenders, allowing them to lend more, at cheaper interest rates, and with more favourable terms.
Yes, but not every business will qualify, as lenders often have more complex criteria, or require other forms of security:
1) Strong financials and credit score: There are some fintech lenders who can provide unsecured loans without Personal Guarantees if a business can demonstrate consistent financial performance and a strong growth trajectory.
2) Collateral‑backed loans: Some traditional lenders do not require personal guarantees if you can offer an asset as security.
3) Smaller loans: Most lenders consider their loan portfolio when making a decision. Smaller loans carry less risk for a lender, meaning Personal Guarantees are not always required.
4) 3rd-party guarantors: Some niche lenders can take a 3rd-party Personal Guarantee from someone who isn’t a owner or director, such as an employee or relative.
Despite the nuances, lenders still assess risk based on:
Loan amount, term and purpose
Trading and credit history
Repayment plan and cashflow projections
Bank statement performance
1) Your Credit Profile: Pay your creditors on time and diversify the types of credit used.
2) Be Document Ready: Use reports from accounting software to evidence improving trading performance and debt serviceability.
3) Maintain Pristine Records: File VAT Returns, Annual Accounts and Confirmation Statements on time.
Pros:
Personal assets are not at risk in the event of default or insolvency.
Business finances and personal finances remain separate.
The ability to access funding without signing a Personal Guarantee.
Cons:
Collateral can still be required as security and lenders have stricter credit requirements.
Loan amounts or terms may be limited compared to Personal Guarantee backed loans.
Interest rates may be higher due to increased risk from the perspective of the lender.
So, is it possible to get a business loan without a personal guarantee?
Yes, particularly for established businesses with strong trading history or collateral for security. But, these options are often harder to access and may involve trade‑offs regarding loan amount, interest payable and other terms.
It is always recommended to seek Independent Legal Advice before signing a Personal Guarantee, to ensure a comprehensive understanding of the agreement and the risks involved.
To explore business loans without Personal Guarantees contact us today.
