Applications for personal guarantee-backed finance have surged in 2026, up 63% year on year in the second quarter alone, and the average loan value now exceeds £317,000. More businesses than ever are being asked to provide one.
If you plan to take out a business loan and are unsure whether you’ll need to provide a personal guarantee or what the benefits and risks might be, read on for the lowdown.
What is a personal guarantee for a business loan?
A personal guarantee for a business loan is a legal commitment by an individual, usually the business owner or a director, to repay the loan personally if the business can’t. It means the individual is financially responsible for the debt if the business fails or cannot meet its repayment obligations.
A personal guarantee reduces risk for the lender by adding an extra layer of protection, which can make lenders more willing to say yes.
What are the benefits of a personal guarantee?
- More financing options – a personal guarantee can open up lending that might otherwise be out of reach, particularly if your business is new or has limited assets to offer as security.
- Better rates and terms – it can help you secure lower interest rates and more favourable terms.
- Higher funding levels – it may give you access to a larger amount of finance.
- Shows your commitment – it demonstrates that you’re standing behind your business or project, which gives lenders confidence.
Often, the guarantee may be limited to a nominal amount, say 10-20% of the loan value, which in practice carries little risk.
What are the risks of a personal guarantee?
As with any financial commitment, it’s important to understand the risks before you sign:
- Personal liability for business debts – if your business cannot repay the loan, you, as the guarantor, become personally responsible for the debt. Lenders can pursue your personal assets, such as savings, investments, or your home, to recover the money owed.
- Bankruptcy – if your business defaults on loan repayments and you can’t cover the debt personally, you may be declared bankrupt and face long-term financial difficulties.
- Damage to your credit score – if your business defaults on the loan and the lender takes legal action to recover the debt from you personally, your personal credit score will be negatively affected. This can make it more difficult to access finance in the future.
- Limited future borrowing capacity – when you’re the personal guarantor for a business loan, it can limit your ability to take out personal finance, such as a mortgage.
Do you always need to give a personal guarantee?
Not always. If your business is new or you don’t have any business assets as security, the lender might require one. However, even then, you can sometimes secure a business loan without a personal guarantee. It usually comes down to finding a lender who’s willing to look at the whole picture.
Thinking about finance?
If you’re weighing up your options and want to understand what a lender might ask for, including any personal guarantee, contact your local ASC office. For over 50 years, we’ve been helping businesses of all types and sizes secure the finance they need, with or without personal guarantees.
