Personal guarantee

Lenders extend credit to businesses, but businesses can close, restructure or run out of assets. A personal guarantee gives the lender a second, human source of repayment. If the business can’t pay, the guarantor must.

What a personal guarantee covers

The document is a contract between the guarantor and the lender, separate from the loan itself. Three features decide how much risk it carries:

1. Scope. A guarantee may cover one named facility, or “all moneys” the business owes that lender now and in the future, including later overdrafts and equipment finance.
2. Limit. It may be capped at a set dollar figure or uncapped. Banks that subscribe to the Banking Code must limit guarantees to a specific amount or category of amounts, or to the value of a nominated security.
3. Support. An unsupported guarantee is a bare promise. A supported guarantee is backed by a mortgage over the guarantor’s property, which lets the lender enforce against that property directly.

Many guarantees also include an indemnity, which can make the guarantor liable even where the underlying loan turns out to be unenforceable against the business. That clause is worth having explained before signing.

Why lenders ask for one

For a company, limited liability means the owners’ personal assets are normally out of reach. A guarantee reconnects them. It also tells the lender the people running the business are committed. Banks, non-banks and fintech lenders all ask for guarantees, including on unsecured business loans, where the guarantee is often the main protection alongside a general security agreement.

Sole traders are already personally liable for business debts, so a separate guarantee isn’t usually needed from the owner, though a lender may still want one from a spouse who co-owns the security property.

The protections differ between banks and non-banks

The Banking Code of Practice gives bank guarantors meaningful protections: copies of key information about the borrower, a waiting period before the guarantee is accepted, notice within 14 days of certain problems with the loan, and a right to withdraw before credit is provided. Non-bank lenders aren’t bound by the Banking Code, so the contract itself sets the terms. Read it more carefully, not less.

Working out whether you can borrow with a limited guarantee, or none at all? Send a quick enquiry and we’ll tell you what lenders will accept.

An Australian example

Mei wants $250k to buy into a Brisbane physiotherapy practice through her company. The lender wants a guarantee from Mei and, because Mei’s equity is in a home she owns with her husband, Daniel, a supported guarantee from both, secured over that home and capped at $250k plus costs.

Daniel has no role in the practice. He gets independent legal advice, confirms the cap and asks that the guarantee be released once the balance falls below $100k. The lender accepts the cap but not the early release. Daniel signs knowing exactly how much he’s exposed to, and for how long.

Had the guarantee been unlimited and all moneys, a later equipment loan the practice took out would have quietly added to Daniel’s exposure.

Related terms

Compare a personal guarantee with a director guarantee and the broader role of a guarantor. Where two or more people sign, joint and several liability means each can be asked to pay the whole debt.

Looking for finance that keeps your exposure clear?

Guarantees are part of nearly every small business loan, but the terms aren’t fixed in stone. If you’d like to know what’s realistic before you sign anything, tell us about the business, the amount and who could stand behind it. You’ll be through the form in about a minute, and there’s no credit check involved in enquiring. We don’t scatter your details across dozens of lenders. A specialist here reads your situation and phones you. Be accurate about any guarantees you’ve already given, because they shape what comes next.

Talk to us about your guarantee options →