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Understanding Personal Guarantees

August 12, 2022 1 Min Read
Property Finance

A business owner must understand what personal guarantees are before signing when completing an unsecured business loan. The majority of unsecured business loans require a personal guarantee to be signed by the business owner or by a director.

The personal guarantee document is a legal promise between the business owner and the lender. In simple terms, if the business is unable to make or keep up with the loan repayments, the individual who signed the personal guarantee becomes responsible for paying back the loan.

The main purpose is to minimise the risk for the lender. Personal guarantees can enable access to finance which allows the business to grow, but they carry personal commitment risks if growth plans don't succeed.

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