With businesses continuing to face financial challenges and lending to SMEs at its highest level since the pandemic, Directors need to be aware of what a Personal Guarantee can mean if insolvency strikes.
One of the first questions we ask Directors of struggling companies is whether they have given any Personal Guarantees. The answer is often no, and yet we quickly discover that many of them have, signed when the business was starting out, or when the bank had turned down a loan and a Personal Guarantee was the price of getting finance elsewhere.
In this article Antony Batty, one of our Licensed Insolvency Practitioners, looks at personal guarantees in insolvency, and why with lending to SMEs being at its highest level since the pandemic, at a time when many businesses are under pressure from rising costs, more Directors could be exposed to Personal Guarantees, with the risk of more Personal Guarantees being called in should insolvency strike.
He also looks at what can happen if a Personal Guarantee cannot be paid, and how an Insolvency Practitioner can help.
Is business borrowing increasing?
According to UK Finance, gross lending to SMEs by the main high street banks reached £5.35 billion in the second quarter of 2026, more than a quarter higher than a year earlier and the highest level since the pandemic. The British Business Bank reports that SME bank lending as a whole rose by 9% to £68 billion in 2025, and that lending to smaller businesses now comes from challenger and specialist banks and a wider range of non-bank lenders, as well as from the high street banks.
UK Finance has also reported that in June businesses were using 51.4% of their available overdraft facilities, the highest level since March 2020, with the increase seen across all sectors and linked to higher costs. Businesses in some sectors, notably hospitality and construction, have also been drawing on their cash reserves.
How common are Personal Guarantees?
Research commissioned by Purbeck Insurance Services found that one in three SME loans has a Personal Guarantee in place, that the average Personal Guarantee backed loan is now nearly £180,000, up 16% year on year, and that challenger banks and non-bank lenders are more likely to require a Personal Guarantee as standard practice.
And it is not just bank loans that carry Personal Guarantees. Asset leasing agreements, invoice finance and factoring, business credit and charge cards and trade supply agreements usually require them too, and sometimes the Personal Guarantee is buried in the terms and conditions or a trade credit application form, so that Directors do not realise they have given one.
Should the worst happen, and insolvency strikes and the loan cannot be repaid, our experience is that Personal Guarantees are often aggressively pursued.
What happens to Personal Guarantees in insolvency?
If the company is unable to pay the debt, the lender can sidestep any formal insolvency process the company enters, as well as limited liability protection, and look to recover the debt from the Guarantor personally by calling in the Personal Guarantee. Liquidation does not therefore bring the Personal Guarantee to an end.
Where the company enters a Company Voluntary Arrangement or a Company Administration, it very much depends on whether the lender considers this to be a crystallising event that activates the Personal Guarantee.
Where more than one Director has signed, they are usually jointly and severally liable, and the lender may choose who to pursue, and not necessarily equally.
What are the consequences of being unable to pay a Personal Guarantee?
Usually the lender will first write asking the Guarantor to settle in full. If that does not happen, the lender can go to court and, with a county court judgment, apply for a charging order securing the debt against the Guarantor’s home, although that does not in itself mean the home must be sold. If £5,000 or more is owed, the lender can also apply to make the Guarantor bankrupt, and a bankrupt cannot act as a company director without the court’s permission.
That is the worst case and, as always, the sooner action is taken, the more options there are available.
How can Insolvency Practitioners help?
The time to start worrying about Personal Guarantees is when a company starts showing signs of financial distress, not when it is already insolvent and in deep trouble, as there will frequently be more options available at that earlier stage.
Perhaps the most important thing Insolvency Practitioners can do is try and ensure that the Personal Guarantee is not called in, and that means seeing if we can find a way to save the business, which is always our first objective. Two options could be a Company Voluntary Arrangement or a Company Administration. As mentioned above, these options depend on whether the lender considers either to be a crystallising event.
If a Director is considering further borrowing to keep the business going, particularly from an Alternative Lender after a mainstream bank has said no, we would recommend a detailed review of the viability of the business first. There is normally a reason why a loan has been refused by a mainstream bank, and it is far better to know whether the business can be saved before signing a Personal Guarantee rather than after.
If the company is not viable and cannot be saved, the option may be to go into Liquidation. We can then help Directors talk to the creditor calling in the Personal Guarantee and work towards a negotiated settlement, including a repayment plan that is acceptable to all parties. It is also worth checking whether the amount claimed is correct, whether any assets secured against the loan have been sold and the proceeds deducted, whether the Director was required to take independent legal advice before signing, and whether the Director could have been misled.
Talk to us if facing insolvency and Personal Guarantees are involved
If your company is struggling to pay its debts and is facing insolvency, the sooner you talk to us the better, especially where Personal Guarantees in Insolvency are involved. If the Personal Guarantee has been properly legally drafted, then the options are: to take action to put things right before the Personal Guarantee is called in; to come to an agreement to pay it over a period of time; or in the worst case to go bankrupt. As always, the sooner action is taken the more options there are available.
Please contact us or call any of our offices below for a FREE initial discussion on the ‘phone or over a coffee.
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FAQs on Personal Guarantees in Insolvency
What is a Personal Guarantee?
A Personal Guarantee is a legally binding agreement under which the Guarantor, often a company Director, agrees to be personally liable for a loan if it cannot be repaid or the company becomes insolvent.
Does Liquidation cancel a Personal Guarantee?
No. The lender can sidestep the Liquidation, as well as limited liability protection, and recover the debt from the Guarantor personally by calling in the Personal Guarantee.
I don’t remember signing a Personal Guarantee. Could I still have one?
Yes. Directors often forget they have given one, and Personal Guarantees can be found in trade credit applications, supplier terms and conditions, business credit and charge cards and leasing agreements, as well as bank loans.
Will a CVA or Administration trigger my Personal Guarantee?
It very much depends on whether the lender considers the procedure to be a crystallising event that activates the Personal Guarantee.
If my co-Director signed too, do we each pay half?
Not necessarily. Directors are usually jointly and severally liable, and the lender may choose who to pursue, and not necessarily equally.
Can a Personal Guarantee be challenged?
It is worth checking whether the amount claimed is correct, whether any secured assets have been sold and the proceeds deducted, whether you were required to take independent legal advice and whether you could have been misled. A solicitor should advise on the Personal Guarantee itself and any challenge.
Can the lender take my house?
Not automatically. With a county court judgment, a lender can apply for a charging order, which secures the debt against your home, and in some cases can then apply for an order for sale. A charging order does not in itself mean the property must be sold.
Can I be made bankrupt over a Personal Guarantee?
Yes. If you owe the creditor £5,000 or more and a statutory demand is not paid or challenged in time, the creditor can apply to make you bankrupt.
When should I talk to an Insolvency Practitioner?
As soon as the company starts showing signs of financial distress, and ideally before signing a new Personal Guarantee to keep a struggling business going.
