What a personal guarantee actually does
A personal guarantee does not move the company's debt onto you. It creates a second, personal contract that lets the lender come to you if the company does not pay. What that is worth to the lender, and costs you, is settled by three clauses.
You incorporated so that the business could fail without taking you with it. A personal guarantee is the document that reaches past that.
The shorthand, "the director becomes liable for the loan", is wrong in a way that changes the questions you ask. The company's debt stays with the company. What you sign is a separate personal contractual obligation, and the lender's right to pursue you under it depends on the wording of the guarantee and on the law that applies to it. The wording is therefore the whole subject of this guide: how large the obligation is, whether you carry it alone, and what ends it.
What the regulator has said
The Federation of Small Businesses alleged that a growing demand for personal guarantees by lenders has a detrimental impact on small businesses. The FCA's answer set out the boundary plainly: lending to limited companies where directors are required to provide personal guarantees falls outside its perimeter. A director signing such a guarantee is not, for that purpose, a protected consumer.
The FCA committed to collecting data from lenders on personal guarantees as a proportion of SME lending, reviewing sample firms' policies on when guarantees are required, testing compliance with the Consumer Credit sourcebook, assessing Financial Ombudsman complaint volumes and outcomes, and publishing additional guidance if the findings warranted it. That is a program of work, not a restriction on what a lender can put in front of you this week. Whether your own borrowing sits inside or outside the perimeter is settled by two facts, your legal form and the amount, and the perimeter test runs through both.
Being outside the consumer-credit perimeter does not by itself put you outside the ombudsman. The Financial Ombudsman Service says an individual who gave a personal guarantee for their own business's borrowing can bring a complaint where the guarantee "was given on or after 1 April 2019", subject to eligibility and the facts. A limited-company director can therefore be unprotected as a borrower and still have a complaint route as a guarantor, and the two tests are decided separately.
The three clauses that decide how bad it is
Guarantees vary far more than rates do, and the variation is not in the headline.
| Term to identify | Question to put in writing | Why it matters | Professional review point |
|---|---|---|---|
| Cap | Is my liability capped at a stated cash figure, and does the cap include interest, default interest and the lender's costs? | An "all monies" guarantee has no ceiling you can price, and a later refinancing can sit under a guarantee signed years earlier | Ask whether the cap wording covers future facilities |
| Joint and several | Am I liable jointly and severally with the other guarantors, or severally for a stated share? | Under a joint and several guarantee the lender may pursue one guarantor for the whole amount and leave that person to recover from the others | Ask what contribution rights you have against the other guarantors |
| Release | What event releases me — repayment, sale of my shares, resignation — and does it operate automatically or only with the lender's written consent? | A guarantee that survives your departure from the company is a live obligation against a business you no longer control | Ask for the release mechanism to be in the deed, not in correspondence |
A capped guarantee is a known, priceable exposure. An uncapped one is not a number at all, which is why the cap question is the one to settle before the others. The other two decide who else shares the number and for how long it stays live.
The point most people miss
A guarantee is not a last resort for the lender. It changes the lender's whole risk picture at the moment of underwriting, which is why a facility with a guarantee can be approved when the same facility without one would be declined. That is a real service: guarantees are often the reason a young company can borrow at all.
The mistake is treating the guarantee as free because it costs nothing today. It is the price. If a lender offers you a lower rate in exchange for a guarantee, you are being asked to swap a cost you can calculate for a risk you cannot, and the size of that risk is whatever the three clauses above leave open.
Before you sign the guarantee
The perimeter positions are the FCA's own. The clause questions are drafting points, not legal advice.
So what do you do
If you are a sole trader borrowing £25,000 or less in the UK, you and any individual guaranteeing that borrowing are inside the perimeter. Saying so in writing before the documents are drafted puts the lender on notice that it is dealing with a protected customer, not an unregulated commercial counterparty.
If you are a director of a limited company, the guarantee is where the negotiation is, because the rate is public and the guarantee wording is not. The three questions, put to each lender in writing, give you answers that can be compared across lenders rather than against an assumption about what is normal. A lender that will not discuss any of the three has told you something about how it will behave later.
If another director has already signed and you are being asked to join, the question that matters is whether the existing guarantee is capped. Joining an uncapped joint and several guarantee is the worst version of this document: the ceiling is unknown and the lender can pick which of you to pursue.
If you are being asked to secure the debt on your home, that is a different transaction with different rules. A charge over the property can fall within mortgage regulation, and the exposure is no longer a debt claim against you but a claim on the house. That is the point at which the document needs a solicitor before it needs a signature.
Who this guide is not for
If your facility is invoice finance against a book you control, or a card-receipts advance with no guarantee attached, the clause questions above do not arise and the pricing is the whole decision. And if a lender has offered you an uncapped, joint and several, non-releasing guarantee and will not move on any of it, there is nothing left for a checklist to test. The comparison at that point is between lenders, not clauses.
This page is part of business finance in the United Kingdom, where the rest of the UK material on this site is collected.
Sources
- Financial Conduct Authority, response to the FSB's super-complaint on personal guarantees for business loans — the FSB's allegation, the perimeter position on limited-company lending, and the FCA's list of planned actions. https://www.fca.org.uk/publications/corporate-documents/fca-response-fsbs-super-complaint-requiring-personal-guarantees-business-loans (checked 20 August 2026)
- Financial Ombudsman Service for small businesses, who we can help — a personal guarantor can complain where the guarantee was given on or after 1 April 2019. https://sme.financial-ombudsman.org.uk/complain/can-help (checked 6 September 2026)
Nothing in this guide is legal advice, and guarantee wording differs between lenders and between jurisdictions. Have the document you are actually being asked to sign reviewed by a solicitor or attorney.
Next step
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Open the cost toolWhat changed on this page
6 September 2026 Correction — Whether the FCA regulates a facility and whether the Financial Ombudsman Service can look at a complaint are now treated as two separate questions with two separate tests. The site previously implied that a company borrower outside the perimeter had no ombudsman route. Eligible small businesses can complain, and so can personal guarantors where the guarantee was given on or after 1 April 2019.