How a Personal Guarantee Can Help Your Business Get More Funding

A personal guarantee (PG) is a legal promise made by a business owner or director to repay a loan if the business cannot. In 2026, PGs remain a standard requirement for small business lending because they bridge the gap between a company's potential and its current credit history. While they carry personal risk, they are often the key to unlocking higher credit limits and better growth opportunities.

Most small businesses use financing to start up or scale, but lending criteria can be strict. In many cases, lenders will ask for a personal guarantee to secure the deal. But what does this actually mean for you as a director?

Understanding liability for your business type

The risk you face when borrowing money depends entirely on how your business is set up. 

• Sole trader: You and the business are seen as one legal entity. You are personally responsible for all business debts. If the business cannot pay, your personal assets are automatically at risk. This is known as unlimited liability. 

• Partnerships: In a standard partnership, the liability is shared amongst the partners. However, the liability is often joint and several, meaning if your partner cannot pay their half, the lender can come to you for the full 100%.

• Limited company: You and the business are seen as two separate legal entities. This structure is designed to protect your personal finances, as your liability is limited to the money you have already put into the business. If the company fails, your personal home and savings are safe. This is known as limited liability. 

What is a personal guarantee?

A personal guarantee is a written agreement between a lender and an individual (usually a director). It bypasses the limited liability of a limited company. Normally, if a limited company fails, the directors' personal assets are safe. However, a personal guarantee means you agree to be personally responsible for the debt.

Why do lenders use personal guarantees?

Lenders use personal guarantees to manage risk. This is especially common if:

• Your business is a start-up with less than two years of trading history.

• Your business has a thin credit file or a low business credit score.

• You are asking for a high credit limit that exceeds the business's current assets.

Should your limited company use a personal guarantee?

For many directors, the decision to sign a PG is about opportunity cost. With the economic landscape requiring businesses to be more agile, a personal guarantee can be a strategic tool.

In the current market, lenders have tightened criteria. Providing a guarantee shows the lender that you are fully committed to the business's success, which often results in faster approvals and higher funding amounts that wouldn't be possible based on the business credit score alone.

Note: A personal guarantee is a serious legal commitment. It should only be entered into after careful consideration of the personal financial implications, as it connects your private assets directly to your business performance.

Pros and cons of personal guarantees

Before signing an agreement, it is helpful to weigh the immediate access to capital against the long-term personal responsibilities involved.

How to manage the risks of a personal guarantee

It is natural to feel nervous about personal liability. However, modern business owners use several strategies to protect themselves and their families while still accessing the funding they need.

1. Personal guarantee insurance: You can take out insurance that covers a percentage of your liability (often up to 80%) if the guarantee is called in.

2. Shared liability: If there are multiple directors, you can often share the guarantee, though you must check if it is joint and several.

3. Building business credit: By using a guaranteed business credit card responsibly, you build the business's own credit profile. Over time, this can help you qualify for future funding without a personal guarantee.

Because a personal guarantee bypasses your limited liability protection and puts your home and savings at risk, it is essential—and often a lender requirement—that you seek independent legal advice before signing. A solicitor ensures you fully understand the specific terms and your personal exposure.

Building business credit without a personal guarantee

While it is difficult to find credit for a brand-new business without a PG, your goal should be to outgrow the need for one.

To build business credit:

• Pay on time (or early): Every single payment on your business card or loan counts toward your score. Making payments before the due date shows lenders you have excellent cash flow management and can give your credit score an extra boost.

• Keep data updated: Ensure your Companies House filings and credit agency details are current.

• Use a business card: A tool like the Capital on Tap Business Credit Card reports your payment history to credit bureaus, helping you build a robust business credit score from day one. 

The bottom line

A personal guarantee is a common and powerful tool that allows small businesses to access the funding they need to thrive. While it does link your personal finances to your business, it is often a necessary step in the early stages of growth. By understanding the risks and using tools to build your business credit, you can use a personal guarantee to your advantage.

Frequently asked questions