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A personal guarantee is a promise about what happens next

If the business cannot pay, this sets out who the lender goes to, in what order, and what you can do once you are the one being pursued.

Read worked examples of how it plays out
How a personal guarantee is called on

What happens after the business cannot pay

A personal guarantee is not triggered the moment it is signed, and it is not triggered all at once. It runs through a fixed order of events, and where the business sits in that order decides what the lender can ask of the guarantor next.

  1. The business defaults

    The sequence starts when the business misses a payment or breaks another condition of the loan, such as a covenant on turnover or gearing. The lender treats this as the default event the guarantee refers to, and from this point the rest of the sequence can run.

    What counts as a default is set out in the loan agreement itself.

    Missed payment

    The business fails to pay an instalment or interest by the date it is due.

    Breach of another condition

    The business breaks a different term of the agreement, even while payments stay up to date.

  2. The lender demands payment from the business

    Before the guarantor hears anything, the lender writes to the business itself, stating the sum owed and a deadline to pay it. The demand goes to the business first because the guarantee stands behind the business's own debt.

    The business pays

    The debt is cleared and the sequence stops here. The guarantee is not called on.

    The business does not pay

    The debt remains outstanding after the deadline, and the lender turns to the guarantee.

  3. The lender notifies the guarantor

    Once the business has failed to pay, the lender writes to the guarantor to say that the business is in default and that the guarantee may be called on. This is a notice rather than a demand for money. It tells the guarantor where things stand before any sum is asked of them personally.

  4. The lender demands payment from the guarantor

    The lender then writes to the guarantor directly, demanding the sum still owed and setting a deadline to pay it personally. From this point, the debt is the guarantor's own to meet.

    The guarantor pays

    The debt is settled and the sequence ends.

    The guarantor does not pay

    The lender moves toward enforcement against the guarantor personally.

  5. The lender considers enforcement against the guarantor's assets

    If the demand goes unmet, the lender can pursue the guarantor for what is owed in their own right, separately from the business. How far that can go depends on what the guarantee allows and what the guarantor owns.

    Through the county court

    The lender seeks a judgment confirming the debt, which it can then use to collect what is owed.

    Against an asset

    Once a judgment is obtained, the lender can seek a charge over an asset the guarantor owns, or pursue bankruptcy if the debt stays unpaid.

The order above follows the shape most guarantees take, but the exact wording of each stage, and what the guarantee itself defines as a default, sits in the document a director has signed.

What some lenders have committed to before you sign

Some lenders have agreed to limits on what a personal guarantee can ask of a director. The limits come from a set of voluntary commitments that UK Finance published in October 2024, and they cover three separate points: how large a guarantee from an individual can be, what advice you're offered before you sign one, and what happens if you decide not to take that advice.

A guarantee from an individual isn't open-ended, with one exception

Under these commitments, a lender doesn't ask an individual for an unlimited guarantee (UK Finance, read 30 September 2026). The one exception is a guarantee supporting a merchant agreement, where the commitment doesn't apply and the guarantee can still be unlimited. If you're asked to sign a guarantee for anything other than a merchant agreement, that's worth checking against this point before you sign.

Independent legal advice, recommended before you sign

The same commitments recommend that you take independent legal advice before signing a guarantee (UK Finance, read 30 September 2026). The point of that advice is to have someone acting for you walk through what the document commits you to personally.

What happens if you don't take the advice

These are commitments a lender has signed up to, not a rule that binds every lender or every guarantee. Where a lender hasn't signed up to them, none of this applies, so it's worth asking directly whether your lender has.

What a Growth Guarantee Scheme loan cannot be secured against

A personal guarantee can ask for backing in several forms: other assets, a charge over the business, sometimes a charge over property. The Growth Guarantee Scheme takes one of those off the table before the guarantee is even drafted. A lender using the scheme cannot ask the borrower to put up their main home as security for a Growth Guarantee Scheme loan.

That exclusion sits with the lender, not with the guarantee's wording. Whatever else the guarantee covers, a Growth Guarantee Scheme loan cannot be secured against the house the director or sole trader lives in. If a lender's paperwork tries to do that anyway, the term falls outside what the scheme allows for that loan.

It does not reach any further than the scheme itself. A lender can still take a home as security for a loan made outside the Growth Guarantee Scheme, and the guarantee can still make the signer personally liable for what the business owes from their other assets and income. What the exclusion removes is one specific risk on one specific kind of loan: losing the home itself to this particular lending.

How the scheme works beyond that point, and what else it sets or changes about the loan, is covered on Growth Guarantee Scheme: What It Changes About Your Loan.

A guarantor can complain to the Ombudsman in their own right

Signing a guarantee does not put you outside the Financial Ombudsman Service's reach. Under DISP 2.7.3R, a guarantor is listed among the eligible complainants in their own right, separately from the business whose debt they guaranteed (FCA Handbook, read 30 September 2026).

Why this applies even when the lending itself was never regulated

A loan to a limited company sits outside consumer-credit rules at any amount. That does not carry over to the guarantee attached to it. The guarantee is a separate undertaking, given by you as an individual, and DISP treats it as its own subject matter. So a director who guaranteed a facility that was never consumer credit can still bring a complaint about how the guarantee itself was sold, explained or enforced.

What a complaint can be about follows from that: how the lender presented the guarantee before you signed, whether it pushed you toward enforcement without first pursuing the business, or whether it followed its own commitments on independent legal advice. A complaint upheld does not erase a valid guarantee, and the route itself can return a decision you did not expect. The sequence of events that leads from signing to a lender knocking on your door is covered step by step in The Personal Guarantee, Clause by Clause.

If you were expecting the Lending Standards Board to hear a complaint

The Lending Standards Board closed on 31 October 2025. Until then, it held lenders who had signed up to its Standards of Lending Practice, a voluntary code covering how a business customer or a guarantor should be treated, including how a default is communicated and how a guarantee is pursued.

A complaint that would once have gone to the Board under that code now follows the Financial Ombudsman Service route instead. If a lender's conduct towards you as a guarantor is the issue, the Board is no longer who you write to.