Personal guarantees and security: what are you agreeing to?
When comparing business funding, the payments are only part of the picture. You also need to understand what the company is committing to and whether you are taking on any responsibility personally.
Three terms often come up: security, personal guarantees and credit checks. They mean different things.
Three terms worth understanding
| Term | What it means | What to ask |
|---|---|---|
| Security | Assets offered to support borrowing. The provider may have rights to take or sell them if the debt is not repaid. | Which assets are involved, and when could the provider act? |
| Personal guarantee | A legally binding promise to pay a company debt personally if the company does not meet its obligations. | What could I owe personally, and what would trigger a demand for payment? |
| Credit check | A check of information about how a company or person has handled borrowing and payments. It helps a provider assess an application. | Whose credit record will be checked, and will the search be visible to other lenders? |
A credit check is not a promise to repay. A funding agreement can involve both security and a personal guarantee.
Does “unsecured” mean I have no personal responsibility?
No. An unsecured business loan may not require business assets as security, but the provider can still ask a director to give a personal guarantee.
Imagine a company takes out a loan without offering equipment or property as security. If a director signs a personal guarantee, that director could still have to pay under the guarantee if the company cannot.
Being a limited company does not cancel a personal commitment you have signed.
What could a personal guarantee mean for you?
Depending on its terms, the guarantee may cover part or all of a debt. Check whether interest, fees and recovery costs are included or can be added.
If payment is demanded under the guarantee, your personal finances and assets could be at risk. In serious cases, being unable to pay could lead to personal bankruptcy.
The practical question is not just “Can the company afford this funding?” It is also “What could I be required to pay if things go wrong?”
Questions to ask before signing
Take the proposed agreement to an independent solicitor and work through these questions:
- What exactly does it cover? One loan, or other amounts the company owes now or may owe later?
- Is there a limit? What is the maximum I could have to pay, including any additional costs?
- When could payment be demanded? What events allow the provider to call on the guarantee?
- Are personal assets specifically offered as security? If so, which ones?
- What if more than one person signs? Could one person be asked to pay the whole amount, rather than an equal share?
- How does the guarantee end? What written confirmation would show that I have been released?
- What happens if circumstances change? Ask about increased borrowing, refinancing, selling your shares or leaving the company.
Do not assume that leaving the business automatically ends a guarantee. Get the position confirmed in writing.
How do credit checks affect business funding?
Providers may use credit checks to help decide whether to offer funding and on what terms. They consider this alongside other information about your business.
Ask whether the provider will check the company, its directors or both.
On your personal credit report, a soft search is not normally visible to other lenders. A hard search leaves a record that other lenders can see and may affect future applications.
Check which type will be used and at what stage. Do not assume that an initial enquiry and a full application involve the same checks.
Give yourself time to understand the agreement
Ask for copies of the proposed documents and explanations of anything unclear. A conversation about the terms is useful, but the wording you sign matters.
Independent legal advice can help you understand your own obligations and the consequences for your circumstances. Some providers require it before accepting a personal guarantee.
Using CapSage to find a provider
CapSage helps UK limited companies look for a funding provider based on their business and funding needs.
If we identify a suitable provider, we’ll introduce you. That provider will explain its proposed terms, including any security or guarantee requirements.
For more on the funding itself, read Business Loans. For what to have ready before approaching a provider, read Eligibility and preparation.