Personal guarantee

Also called PG, Director's guarantee

A promise to pay the company's debt from your own money if the company cannot. It survives the company.

What it means

A personal guarantee is a contract between you as an individual and a creditor of your company, under which you become liable for the company's obligation if the company defaults.

It removes limited liability for that specific debt, entirely and by agreement.

Why it matters

Banks, landlords, equipment finance companies, some suppliers and most invoice finance providers ask for them as standard for small companies. Signing one is normal. Signing one without reading it is not, and it happens constantly.

If the company fails, the guarantee does not. Guarantees have cost people their homes years after the business they related to stopped trading.

What it looks like in practice

Things worth negotiating, all of which are sometimes agreed: a cap on the amount, a time limit, an expiry when a covenant is met, exclusion of the family home, a several rather than joint liability split between directors, and a release mechanism when you leave.

Personal guarantee insurance exists and covers a proportion of the exposure. It is not cheap and it is worth pricing.

What to watch out for

Joint and several liability. If two directors both sign, the creditor can pursue either for the whole amount, not half each — commonly misunderstood by co-founders.

Guarantees that continue after you resign. Resigning as a director does not release you; a written release does.

All-monies guarantees, which cover not just this facility but anything the company ever owes that creditor.

Where to get proper advice

A solicitor, before signing, every time. Some lenders require independent legal advice and a certificate to prove you got it — that requirement exists because these are enforced.