Business loans and personal guarantees: what you're really signing

Setting up a company is meant to separate the business’s debts from your own. For most small business borrowing, a personal guarantee quietly undoes that separation. You sign one page and the company’s loan becomes, if things go wrong, your loan.

That’s not a reason to refuse. Guarantees are a normal part of small business lending in Australia and few lenders will advance money to a small company without one. It is a reason to read the guarantee as carefully as the loan itself, because the clauses inside it decide how much you could lose.

Why do lenders insist on a guarantee?

A company is a separate legal person. If it fails, its creditors can usually only recover from what the company owns, and small companies often own very little: some equipment, some debtors, perhaps a lease. A director’s guarantee hands the lender a fallback: if the company can’t pay, a person can. It also ties the owner’s own fortunes to the business, which lenders see as a powerful incentive.

The wider market shows how rarely small business lending is truly unsecured. According to RBA research published in October 2025, loans with no security at all have made up under 5 per cent of SME credit for several years running. Even loans marketed as “unsecured” almost always come with a director’s guarantee. What they lack is a mortgage over property, not personal liability.

What kinds of guarantee will you be asked for?

Type	Who signs	What it covers	Risk level
Director’s guarantee	Every director of the borrowing company	Whatever the company owes under the facility	Expected on almost any small company loan
Third-party guarantee	A spouse, parent or other person outside the business	The borrower’s debt, often up to a limit	High for someone who gets no direct benefit
Limited guarantee	Any guarantor	Debt up to a stated dollar cap or one named facility	Lower; exposure is known in advance
Secured guarantee	Any guarantor, backed by a mortgage over their property	The debt, with the property available to the lender	Highest; the home is directly exposed

For tighter definitions, see the entries for a personal guarantee and a director guarantee.

Which clauses decide how much you could lose?

Guarantee documents look similar across lenders, but four features make an enormous difference.

Scope: one loan or “all moneys”?

A specific guarantee covers a named facility. An “all moneys” guarantee covers every amount the borrower owes that lender, now or in future. Sign an all moneys guarantee for a $100k equipment loan, and a later $250k overdraft the company takes from the same lender may be covered too, even though you never signed anything for it.

Limit: capped or unlimited?

An unlimited guarantee exposes you to the whole debt plus interest, fees and enforcement costs. A capped guarantee sets a ceiling. Ask for a cap wherever you can, set at the loan amount or a fixed figure.

Joint and several liability

Where several directors guarantee, the wording is usually joint and several. In practice the lender may chase whichever director is easiest to recover from, for everything, and that director then has to claim contributions from the rest. The joint and several liability entry explains how that plays out.

Continuing guarantee and indemnity

Most guarantees continue until the lender formally releases them, not just until the original loan is paid. Many also include an indemnity, which can make you liable even if the underlying loan turns out to be unenforceable against the company.

What protections do guarantors get from banks?

Banks signed up to the industry’s Banking Code of Practice have to follow set rules when they take a guarantee for a loan to an individual or a small business covered by the code. The current version took effect on 28 February 2025. Among other things, according to the code:

• Information first. Before you sign, the bank has to hand over material such as the draft loan contract, the security documents and financial details about the borrower.
• Time to think. Generally, the bank can’t accept the guarantee until the third day after you receive that information, unless you’ve had independent legal advice or another exception applies.
• A private meeting. The bank must arrange to discuss the guarantee with you without the borrower present, unless you’ve had independent legal advice.
• A cap if you ask. You can limit the guarantee to a set amount, a category of debt or the value of particular security, and you can ask to reduce it later, though the bank can refuse in some cases.
• A window to withdraw. You can withdraw in writing before credit is first provided, or if the final loan differs materially from the one you were shown.
• Borrower first. The bank generally has to enforce the borrower’s own security before pursuing you, including before enforcing a mortgage over your principal place of residence, with some exceptions.
• An exit. You can end your liability by paying the lower of the outstanding debt or your guarantee limit.

These protections are a strong reason to take a bank’s offer seriously when you qualify. Banks are often the cheapest business lenders, and the guarantor rules add a layer of fairness.

Do non-bank lenders offer the same protections?

Not automatically. The Banking Code applies only to banks that have adopted it. Non-bank, fintech and private lenders set their own terms, though some follow industry codes. The Australian Finance Industry Association’s code for online small business lenders, for example, applies to its signatories when they provide unsecured online loans.

That doesn’t make non-bank guarantees unfair. It means you should read them closely and ask direct questions:

1. Does the guarantee cover only this facility, or everything the company owes you?
2. Is there a cap? If not, will you agree to one?
3. Is the guarantee secured by a caveat or mortgage over any property I own?
4. When and how will the guarantee be released once the loan is repaid?
5. Will you pursue the company’s assets before coming to me?

If a lender won’t answer clearly, that tells you something. Wondering how this plays out for your loan? Run your situation past our team without any effect on your credit file.

What does it look like when a lender calls on a guarantee?

Here’s an illustrative example. A Brisbane hospitality company borrows $180k unsecured over three years from a non-bank lender to open a second venue. Both directors, a married couple, sign unlimited joint and several guarantees. Eighteen months later the second venue closes, the company can’t keep up repayments, and it enters liquidation with $115k still owing.

The lender issues a demand to both directors. Because the guarantees are unlimited, the demand covers the $115k balance plus default interest, fees and legal costs. And with joint and several wording, either spouse alone can be asked for the lot.

If the couple can’t pay, the lender could sue, obtain a judgment and, for a debt of $10k or more, use the bankruptcy process to recover. Their home isn’t mortgaged to the lender, but in a bankruptcy their interest in it could be at stake.

Now rerun the same story with two changes negotiated at the start: each guarantee capped at $90k, and an agreement that the lender first realises the company’s equipment and fit-out. The company’s assets recover $35k, leaving $80k owing, and the couple’s exposure is known and limited. Same business failure, very different personal outcome.

How can you reduce your exposure?

You won’t always win these points, but asking costs nothing and lenders do agree to some of them.

• Ask for a cap equal to the loan amount, or less if other security is strong.
• Limit the scope to the specific facility, not all moneys.
• Exclude non-director family members. Where a partner plays no role in the company and has no share in the property offered, ask that they not be required to sign.
• Agree a release trigger, for example dropping the guarantee when the debt is paid down to an agreed level, or after two years of on-time repayments.
• Offer specific security instead, such as equipment or a term deposit, in exchange for a narrower guarantee.
• Track what you’ve signed. Keep a simple list of every guarantee in your name. Each one is a contingent liability that future lenders will ask about and may count when testing serviceability.

If your home is being offered as well, read the risks of using your home as business security before you sign. If you’d rather avoid a guarantor altogether, business loans with no guarantor explains where that’s possible and what it trades away.

When might a guarantee be avoided?

A few situations reduce or remove the need for one:

• Strong property security owned by the company or a related entity can sometimes replace a personal guarantee, or narrow it.
• Larger, established businesses with solid balance sheets and long trading histories have more negotiating power.
• Asset finance is secured by the equipment or vehicle itself, and some lenders accept a limited guarantee or none for well-established borrowers.
• Sole traders don’t sign guarantees at all, because they’re already personally liable for every business debt.

For most small companies, though, the realistic goal isn’t avoiding a guarantee. It’s signing one you understand, with limits you’ve negotiated. Our comparison of guarantor and no-guarantor business loans puts the pros and cons next to each other.

Signing a guarantee is a big decision. Get the loan right first

If you’re going to put your name behind a business loan, it should at least be the right loan: the right size, a sensible term, a lender whose guarantee terms you’ve read and can live with. Helping you find it is our job.

The form is short enough to finish in around a minute, and asking won’t put an enquiry on your credit file. We keep what you tell us in-house, rather than shopping it to every lender in the country, so you won’t get a run of cold calls. One of our specialists reviews your circumstances, including who would need to guarantee and what security is on the table, and gives you a ring. Fill in the ownership and security questions carefully; it’s how we find a lender with terms that suit you on the first attempt.

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