Yes, you can get a business loan without giving a personal guarantee – but this usually depends on the size of the loan, your business’s trading history, and how much risk the lender is willing to take on without one.
Smaller, newer, or higher-risk businesses are more likely to be asked for a personal guarantee than established companies who have been trading longer.
What is a Personal Guarantee?
A personal guarantee is a legal promise from a director or business owner to repay a business loan personally if the business itself is unable to.
Normally, running a company means the business’ debts stay separate from your own money.
With a personal guarantee, your own assets, including your home in some cases, could be at risk if the business defaults and the guarantee is called upon.
Why Do Lenders Ask For Personal Guarantees?
Lenders ask for personal guarantees to reduce their own risk, particularly when lending to smaller or newer businesses that don’t have a long trading history to fall back on.
By making a director liable, the lender has a second route to recovering the debt if the business can’t repay it. It can also mean access to better rates or larger loan amounts than would otherwise be offered.
What Types of Business Loans Do Not Require a Personal Guarantee?
Loans that don’t require a personal guarantee are more common with asset-based lending, invoice finance, and cash advances, since these are secured against the business’s own assets or income rather than the director personally.
Smaller, unsecured loans also often skip the personal guarantee requirement, particularly for businesses with strong trading history, healthy cash flow, or a good credit profile.
Larger loans, newer businesses, and those with limited assets are far more likely to require one, as the lender has less to fall back on if things go wrong.
What Happens if a Personal Guarantee is Required?
If a personal guarantee is required in the lending agreement, you become personally responsible for repaying whatever the business still owes, and the lender can pursue you directly for that amount. This usually happens after the business has defaulted and the lender has been unable to recover the debt through the business itself.
Where more than one director has signed the guarantee, lenders can often pursue any one of them for the full amount rather than splitting it evenly, depending on how the guarantee is worded.
If you’re unable to pay, the lender can take legal action, which may include a County Court Judgment or a claim against personal assets such as your home.
Can I Reduce my Risk if I give a Personal Guarantee?
Yes, one option is Personal Guarantee Insurance, which covers a portion of your liability, often around 70-80%, if the guarantee is called upon and you’re unable to pay. It doesn’t remove the guarantee itself, but it can limit how much of your personal assets are exposed if your business defaults.
It’s also worth negotiating the terms of the guarantee itself before signing with your lender, as you may be able to cap the personal guarantee at a certain percentage of the loan rather than the full amount, or limit the length of the term it applies for.