Business Finance No Personal Guarantee

Personal guarantees are fairly common in the lending world, but they’re also a topic of contention for some business owners. A personal guarantee, also called a director’s guarantee here in the UK, is when the owner of a limited business agrees to personal liability for the loan or business finance if the business is unable to repay the debt. 

This is a tough agreement to consent to for some owners, who may not have the personal assets or wealth needed to risk their personal livelihoods. In other cases, businesses with complex ownership structures and multiple directors may be unable to sign a personal guarantee without a great deal of complexity and confusion. 

If you don’t want to sign a personal guarantee, you can still access finance. Lenders can consider other forms of security, or you can strengthen your application to better represent your business and lessen a lender’s perceived risk.

Get a loan without a personal guarantee by working with our team. We know the lender’s market inside and out and can help identify lenders who will offer you cashflow loans without requiring a personal guarantee. 

Should you offer a personal guarantee?

Before you commit to a personal guarantee, it’s important to question if you need one. To understand why a lender may ask for one, we must look closer at what they are and how they function. 

A Director who signs a personal guarantee makes a clear commitment to repay the debt if their business fails to do so. If you don’t have the cash in your bank to make repayments, your personal assets are at risk – including your home. 

Personal guarantees are often requested even when they’re not technically necessary. A successful business may be asked to sign one just to demonstrate the Director’s commitment to the company. A lender may feel as though a Director who signs a guarantee will be more motivated to see their business succeed so they don’t have to make personal repayments. 

Signing a personal guarantee does carry benefits. Lenders will generally offer more favourable rates and terms to a borrower who signs. Many unsecured loans are only available to those Directors who will sign one. 

Generally, Directors who do sign a guarantee are highly confident in their business. If you aren’t, you won’t want to risk your personal assets and, therefore, won’t want to sign. However, even without one, you may still be able to get a cash flow loan by arranging it through our team here at Rangewell.

The downsides of personal guarantees

If you’ve been asked to sign a personal guarantee, you’ll need to consider the other associated risks aside from just your personal assets. The main challenges are:

1. Personal guarantees are unbreakable and binding. If your business becomes insolvent, the guarantee still holds.
2. If you can’t repay your debts, you’ll be made bankrupt. A lender can then issue a bankruptcy petition, which forces you to disclose all personal assets. These are then taken over by a Trustee and sold to repay the lender. 
3. If your residential home is the main source of cash to repay a lender, you may have to ask your spouse to co-sign the guarantee.
4. Wording can be ambiguous, and personal guarantees are often vague about time limits. Consider personal guarantee insurance to help protect yourself. 

Secured and unsecured business loans and finance with no personal guarantee

As we’ve covered, signing a personal guarantee does offer some benefits – especially with regard to unlocking offers for unsecured loans. For a lender to have the confidence required to credit your business with no security or guarantee in place, you’ll need to have an excellent credit history, a stellar record of business performance and strong negotiation skills. 

Alternatively, speak to Rangewell. We can help you discuss both secured and unsecured lending options for borrowing without a personal guarantee. No matter what type of business you operate, we know the market and can help you improve your application and negotiate a loan on your behalf.