Personal Guarantees

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When lending to a limited company, LLP or other corporate borrower, most lenders will require a personal guarantee from the directors and, often, the main shareholders. A guarantee is a promise that if the borrower does not repay the loan, the guarantor will.

How guarantees usually work

Most bridging lenders ask for an unlimited, or uncapped, guarantee. This means the guarantor can be liable for the full amount owed, including interest, default interest, fees and the lender’s enforcement costs. Where there is more than one guarantor, liability is usually joint and several, which means the lender can pursue any one guarantor for the whole amount. Guarantees are also usually drafted so that the lender does not have to sell the property before making a demand on the guarantor.

Negotiating a cap

Guarantee terms can sometimes be negotiated. Where possible, it is worth pushing for a cap, either a fixed sum or a percentage of the loan. A lower loan-to-value, a clear exit and a strong track record all strengthen the case. Not every lender will agree, but we will raise it on your behalf as part of structuring your loan.

Independent legal advice

Every guarantor should take independent legal advice before signing. This means advice from a solicitor acting for the guarantor personally, rather than for the borrowing company, so that the guarantor fully understands what they are agreeing to. Most lenders insist on this and will require the solicitor to sign a certificate confirming that advice has been given.

This is particularly important where a guarantor is not involved in running the business, such as a spouse or family member. Advice usually involves a meeting, in person or by video, so please arrange it in good time to avoid holding up completion.

Protecting yourself

If you are giving a personal guarantee, you may wish to consider Personal Guarantee Insurance. Please see our separate guide.