Property Finance
Oct 12, 20265 min read
Before signing on the dotted line, here is everything you need to know about personal liability, PGs, and how to negotiate them or insure against them.
A Personal Guarantee (PG) is one of the most significant commitments a business owner can make — yet many directors sign them without fully understanding what they're agreeing to. Given the potential consequences, it's essential that every director considering a PG-backed facility has a thorough understanding of the implications before proceeding.
What Exactly is a Personal Guarantee?
A personal guarantee is a legal commitment made by an individual director (or multiple directors) to repay a business debt personally if the company is unable to do so. Crucially, a PG pierces the corporate veil — it means that even if your business is a limited company, your personal assets (including your home, if a charge is registered) can be at risk if the loan defaults.
PGs are extremely common in commercial lending. For unsecured business loans under £500,000, they are virtually universal. For larger secured lending, they may be required alongside property or debenture security as an additional comfort for the lender.
Types of Personal Guarantee
- Unlimited PG: The director is personally liable for the full outstanding debt, interest, and any recovery costs. This is the most common type for unsecured lending.
- Limited PG: Liability is capped at a specific amount (e.g., 50% of the loan value). This is more common in larger facilities with multiple directors.
- Joint & Several PG: Where multiple directors provide a guarantee, the lender can pursue any one of them individually for the full amount — not just their proportional share.
- Supported PG: Backed by a charge over a specific personal asset, such as a director's residential property.
Important: Always seek independent legal advice before signing a personal guarantee. Many lenders require evidence that you have taken such advice as part of the documentation process.
Can You Negotiate a Personal Guarantee?
Yes — in many cases, PGs are negotiable, particularly with the assistance of an experienced commercial finance adviser. Common negotiation points include: requesting a cap on the guarantee amount, seeking a time-limited guarantee that expires after a set period, negotiating the release of the PG once the loan falls below a certain balance, and requesting a 'material adverse change' clause that limits triggers for the lender calling the guarantee.
Our advisers routinely negotiate guarantee terms on behalf of clients. Lenders who want to do business with quality borrowers are often more flexible than their standard documentation suggests.
Personal Guarantee Insurance: Protecting Your Downside
One of the most effective risk management tools for directors who have provided a PG is Personal Guarantee Insurance (PGI). This specialist insurance product pays out a proportion of any enforced PG — typically 60–80% of the guaranteed amount — providing a critical financial safety net.
PGI premiums are generally between 1–5% of the guaranteed sum per year, depending on the business's financial profile and the nature of the lending. For many directors, this represents outstanding value — peace of mind that a business failure, while devastating, won't necessarily result in the loss of the family home.
Our team can provide introductions to specialist PGI providers and help you assess the coverage that best suits your specific guarantee obligations. Contact us to discuss your situation confidentially.
