Personal Guarantee Guide
Learn about personal guarantees, company debentures, and asset security. We'll help you understand what lenders may require and find the best options for your circumstances.
Why Do Lenders Require Security?
Security gives lenders confidence that they can recover their funds if a borrower cannot repay. Understanding security helps you make informed decisions about your finance options.
Reduces Risk
Security protects the lender if repayments cannot be made
Better Terms
Offering security often unlocks lower interest rates
Higher Amounts
Security can help you access larger loan amounts
Important: Security requirements vary significantly between lenders and loan types. Your dedicated broker will always explain what's required before you proceed.
Personal Guarantees (PGs)
A personal guarantee is a legal commitment from business directors or shareholders to repay a loan if the company cannot. This is the most common form of security for unsecured business loans.
- Typically required from directors with 20%+ shareholding
- May be limited (capped amount) or unlimited
- Demonstrates personal commitment to the business
- Common for newer businesses or higher-risk lending
Important to Know
If your business cannot repay the loan, you become personally liable. This could affect your personal credit score and, in extreme cases, your personal assets.
Types of Charges
Fixed Charge
Security over specific assets like property or equipment. You cannot sell these without lender consent.
Floating Charge
Security over changing assets like stock and debtors. You can trade these in the normal course of business.
Company Debentures
A debenture is a legal charge registered against your company's assets. It gives the lender security over company assets including stock, equipment, and receivables.
- Registered at Companies House publicly
- Common for larger loan amounts
- Often combined with personal guarantees
- Released when the loan is fully repaid
Funding Against Assets
Different types of assets can be used as security, often unlocking better terms and higher borrowing limits.
Property Security
Commercial or residential
Using property as collateral can unlock larger loan amounts and significantly better interest rates.
- First or second charge against property
- Typically up to 70-80% LTV
- Results in lower interest rates
- Required for most bridging loans
Equipment & Vehicles
Asset finance solutions
Business assets such as vehicles, machinery, and equipment can be used as security through hire purchase or leasing.
- Lender holds ownership until repaid
- Asset value determines loan amount
- Asset must be insured throughout
- Common for vehicle and equipment finance
Invoice Finance
Unlock cash from receivables
Unpaid invoices can be used as security, releasing cash tied up in your sales ledger.
- Secured against your receivables
- Grows with your sales
- Revolving credit facility
- Ideal for B2B businesses
Stock Finance
Inventory-backed lending
Your stock inventory can be used as security, providing working capital for seasonal businesses.
- Secured against inventory value
- Regular stock audits may apply
- Great for seasonal peaks
- Retail and wholesale businesses
Frequently Asked Questions
Will I always need to provide a personal guarantee?
Not always. Some lenders offer unsecured loans without personal guarantees for established businesses with strong trading history. However, most business loans for SMEs will require some form of director guarantee.
Can I negotiate the terms of a personal guarantee?
Yes, in many cases you can negotiate. Options include limiting the guarantee to a percentage of the loan, setting a cap on your liability, or having the guarantee reduce over time as the loan is repaid.
How does a debenture affect my business?
A debenture restricts your ability to sell or dispose of assets covered by the charge without lender consent. It's registered publicly at Companies House, which other creditors can see. The debenture is released when the loan is fully repaid.
What if I don't have assets to offer as security?
Many business loans are available unsecured, particularly for smaller amounts. Options include unsecured business loans, merchant cash advances, and revenue-based financing. Your broker will find lenders that match your circumstances.
Expert Guidance Every Step
Understanding security requirements can be daunting. Our experienced brokers will explain exactly what each lender requires, help you weigh up the options, and find the most suitable solution for your business.
- Security requirements vary by lender and loan type
- Personal guarantees are common for SME lending
- Providing security can unlock better rates
- We explain all requirements before you proceed
Free, No-Obligation Advice
Not sure what security you can offer? Concerned about personal guarantees? Talk to us. We'll explain your options clearly and find the best path forward for your business.
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