A company may need a director’s personal guarantee to obtain a loan, secure premises or open a supplier account. The commercial benefit can be clear; the personal exposure is sometimes less obvious. A guarantee can make the director responsible for payment even though the underlying agreement is in the company’s name.
Before signing, assess the guarantee as a separate commitment. The question is not simply whether the business expects to repay, but what you could owe if it cannot.
Understand what you are signing
Company debts and personal debts are distinct. Giving a personal guarantee creates a route to personal liability; it is not merely confirmation that you are authorised to sign for the company. The Insolvency Service warns that personal assets may be exposed if a guaranteed obligation is not met.
In England and Wales, section 4 of the Statute of Frauds 1677 normally requires a guarantee, or a sufficient record of it, to be in writing and signed by the guarantor or an authorised person before it can be enforced by action. That does not mean every signed document is enforceable: the agreement and circumstances still require assessment.
Check whether the document also contains an indemnity, which may create a separate, primary payment obligation. Its title alone does not determine its effect.
Establish the extent of the exposure
Ask whether liability is capped and whether interest, enforcement costs and expenses fall inside or outside that cap. An “all monies” clause may cover future borrowing as well as the current facility. Read the guarantee alongside the finance agreement, rather than assuming it covers only the amount discussed at the outset.
Where liability is joint and several, one guarantor may face a claim for the whole guaranteed amount, subject to any applicable cap. Do not assume that two directors necessarily bear equal shares towards the lender.
Agree an exit before circumstances change
Resigning as a director or selling your shares does not ordinarily release you from a guarantee. Check any termination mechanism and obtain the lender’s agreement where release requires consent. A notice ending future exposure may leave existing liabilities intact. Keep written evidence of any agreed release with the transaction documents.
Make the decision commercially informed
Request the complete documents in time to obtain independent legal advice. The company’s interests and your personal interests may differ, particularly where several directors are involved. Ask your adviser to explain the proposed obligation in the context of your own circumstances.
Review the company’s ability to meet the commitment and consider how a payment demand would affect your household finances. A guarantee described as unsecured can still expose personal assets to enforcement; it does not mean the guarantor has no personal risk.
Discuss whether a smaller guarantee, a defined end point or different finance terms are available. These are matters for negotiation, not rights the lender must accept. Compare the benefit of the facility with the exposure you would retain, and keep a complete copy of what is signed.
If a demand arrives
Do not ignore it, including after you have left the business. Gather the guarantee, underlying agreement, account statements and relevant correspondence. Ask for advice on the claimed amount, the conditions for payment, any available response and deadlines. The fact that a demand has been issued does not itself establish that every sum claimed is recoverable.
Balaghi & Rose advises on commercial agreements and disputes. Contact our team if you need advice before signing a personal guarantee or responding to a demand.
General information only. This article concerns England and Wales and reflects the position checked on 2 November 2026. It is not legal advice.
