Personal guarantees on business loans

Most small business owners sign a personal guarantee at some point. It is standard in business lending, but it is also one of the most important documents you will sign, because it links your personal finances to the business’s debts.

What a guarantee does

A guarantee is a promise to the lender: if the business does not repay, the guarantor will. If the business defaults, the lender can pursue the guarantor for the amount owed, which can include personal assets.

Who gives guarantees

Business structure	Usual guarantors
Company	Directors, sometimes major shareholders
Trust with a corporate trustee	Directors of the trustee company
Partnership	Partners are generally liable already
Sole trader	No guarantee needed; the debt is already personal

Lenders may also ask a spouse or family member to guarantee, particularly if they co-own property being used as security.

What to check before signing

1. Scope: does it cover this loan only, or all debts the business owes the lender, now and in the future?
2. Limit: is the guarantee capped at a set amount, or unlimited?
3. Security: is the guarantee backed by a mortgage over your property?
4. Joint liability: with several guarantors, can each be pursued for the full amount?
5. Release: how and when does the guarantee end?

Ready to find out? The enquiry form takes about a minute. No credit check, no spray of your details to a dozen lenders, just a call from a real person.

Guarantees and unsecured loans

Unsecured does not mean unguaranteed. Unsecured business loans rely on the business’s trading and, almost always, on personal guarantees. That is the trade-off for not offering property.

When ownership changes

If you sell your share or leave as a director, your guarantee does not end automatically. Ask the lender for a formal release as part of the exit, and check whether a replacement guarantor is required. Our page on partner buyouts covers this.

Get advice when it matters

For large loans, unlimited guarantees or guarantees backed by your home, independent legal advice is sensible. Some lenders require it for guarantors who are not involved in the business, such as a spouse.

Reducing your exposure

• Ask whether a limited guarantee is possible.
• Use property security deliberately and only where needed. See using home equity for business.
• Keep the business’s borrowing sensible, so a guarantee is never called on.

An illustrative example

Two directors guarantee a $200,000 company loan jointly and severally. The company struggles and stops repaying with $150,000 outstanding. The lender can pursue either director for the full $150,000, not just half each. Understanding that before signing helped them insist on a modest facility and keep a buffer, so the guarantee was never tested.

Read next

• Borrowing through a company or a trust: How lenders treat business loans to companies and trusts: director guarantees, trust deeds, trustee powers and what to have ready before you apply.
• Unsecured business loans: Unsecured business loans from $5k to $500k, sized on turnover and bank statements with no property needed. How they are assessed and what they suit.
• Funding a partner buyout: Buying out a business partner or co-director? How to fund it, value the share, protect cash flow and structure the deal well.
• Non-bank business lenders: what to check first: What to check before borrowing from a non-bank business lender: who they are, total cost, fees, early repayment, security, guarantees and complaints.
• Using home equity to fund your business: Should you use your home equity to fund your business? How it works, the real risks, how to protect your family and how to decide whether it is right.

A quick glossary

• Personal guarantee: a promise by a director or owner to repay a business debt if the business does not.
• Total cost of finance: the dollar gap between the cash that reaches your account and everything you hand back over the life of the loan, fees included.
• Equity: the slice of a property that is genuinely yours once every secured debt is taken off its likely sale price.
• Exit strategy: the planned way a short-term loan will be repaid, such as a sale, refinance or large receivable.

Before you accept an offer

• What will this cost in total, not just per week?
• Are there establishment, line or exit fees?
• Can the term be extended if a sale or refinance is delayed?
• Which assets or properties are being used as security?
• How quickly can the facility be closed if I no longer need it?

Where your accountant fits in

Before committing, run the plan past your accountant or bookkeeper. They can check that the amount matches the real need, that the repayments fit your cash flow forecast and that nothing in your tax position will cause a surprise. If property or guarantees are involved, everyone signing should understand what they are agreeing to, and some may want independent legal advice.

Key takeaways

• Guarantors are personally liable if the business does not repay
• Most small business loans require them
• Check whether the guarantee is limited or unlimited
• Leaving a business does not automatically end a guarantee

From enquiry to an answer

After you enquire, a real person picks up your details and calls to talk through the purpose, the timing and how the money will be repaid. Unsecured funding is assessed mainly on bank statements and turnover. Property-secured funding is assessed on the property, with no valuation required, and interest can be prepaid or added to the loan. You see the total cost before you commit, and the credit check only happens once you decide to proceed. If the timing is tight, tell us the deadline on the first call so the work can be planned around it.

Funding or another fix?

Not every cash problem is a funding problem. Sometimes the better fix is a conversation with a supplier, a payment plan with the ATO, chasing an overdue invoice or adjusting prices. Funding earns its place when it solves a timing gap or unlocks an opportunity worth more than its cost. We will tell you honestly which situation you are in.

A simple preparation list

A short checklist before you send the enquiry. None of it takes long, and together it heads off the most common causes of delay:

• Know the amount you need and what it will pay for.
• Check your recent bank statements so nothing in them surprises you.
• Note any loans, leases or payment plans the business is carrying.
• If you own property, know who is on the title and what is owed.
• Make sure every director or co-owner knows you are applying.

About the questions we ask

Think of the enquiry as the brief for your funding. A clear brief gets a fast, accurate answer. Give the amount you genuinely need, the revenue your bank statements will show, an honest view of your credit and a straight yes or no on property, and we can match you to the right option on the first attempt.

Your next step

The quickest way to know what is realistic is to send the 60-second enquiry. It runs no credit check, it is read by a person rather than an algorithm, and your details stay with one team instead of being sent to a list of lenders. Please answer the questions as accurately as you can, especially the amount, your monthly turnover and your credit history. Accurate answers mean the first option we put in front of you is the right one.