The loan sits with the company. The guarantee sits with you.

For a director buying the premises through the company, a personal guarantee is usually what stands behind the mortgage if the company cannot pay.

What a personal guarantee is

A lender who agrees to fund the premises a business trades from is still lending to a trading company, and it weighs that company differently from a homeowner with years of payslips behind them. Where the company's own accounts and the value of the building do not give the lender enough cover on their own, it asks a director to add a personal promise to the loan. That promise is the personal guarantee.

What signing one means

A personal guarantee is a separate document, signed alongside the mortgage, in which a director agrees to repay the loan, or whatever part of it the lender has not recovered, from their own money if the company cannot pay. The company stays the borrower on paper. The director is not taking out the loan, but is answering for it if it goes wrong, in a way that goes beyond anything a residential mortgage usually asks of a homeowner, as set out alongside the other differences in how a commercial mortgage differs from your home loan.

What it commits a director to

If the company falls behind on the mortgage payments and cannot put that right, the guarantee lets the lender pursue the director for whatever is still owed. Depending on what the guarantee document allows, that can reach a director's house, savings and other personal assets.

  • A guarantee usually covers the whole loan, unless the document names a limit.
  • Where more than one director signs, each is normally liable for the full amount, a liability known as joint and several liability.
  • A guarantee typically runs for as long as the loan does, and signing does not stop applying just because a director later leaves the company, unless the lender agrees in writing to release them.

This describes what a personal guarantee commonly commits a director to. It is not legal or financial advice, and the specific wording of any guarantee document should be checked with a solicitor before it is signed.

Who owns the building, and who carries the risk if the loan is not repaid

Buying the premises through a limited company keeps the building off the director's personal balance sheet and on the company's. The company borrows the money, the company's name is on the title, and the company makes the repayments out of its own trading income.

A lender still usually wants more than the company's word. Most lenders ask the directors to sign a personal guarantee, a separate promise that if the company cannot keep up the repayments, the directors will make good the shortfall from their own money. The company owns the asset; the directors carry the risk if it goes wrong.

Why the company's limited liability does not stop here

A limited company is meant to separate the business's debts from the director's personal finances. A personal guarantee is the lender's way of stepping past that separation for this one loan. It does not alter what the company owns or owes, but it does mean the mortgage is no longer only the company's problem if payments stop.

What this means for the director's own position

Signing the guarantee does not give the director any claim on the building. The property stays the company's asset throughout, recorded on the company's balance sheet, sold or refinanced as the company decides. The director's exposure runs the other way: downside if the loan is not repaid, no additional stake in the property if it is.

The consequences of this route sit alongside the other ways of owning the premises, set out on Company, director or pension: who should own the building, and alongside how a commercial mortgage is priced and secured more generally, covered in How a commercial mortgage differs from your home loan.

The UK Finance commitments on personal guarantees

A personal guarantee is a promise a lender can ask a director to sign alongside the loan itself, and until October 2024 that promise could, in principle, run to the whole debt with no limit and no requirement that the director take advice before signing. UK Finance, the trade body for the banking and finance industry, published a set of voluntary commitments in October 2024 setting out how its members would handle individual guarantees on business lending from then on.

What the commitments say

Under the commitments, a lender does not ask an individual to guarantee an unlimited amount; the guarantee is capped at a stated sum, so a director can see the exact figure they are exposed to. The commitments also say that a director should be encouraged to take independent legal advice before signing, so that someone acting for the director explains what the document commits them to.

What they do not do

These are commitments the lenders who signed up to them have agreed to follow. A guarantee remains enforceable once signed, and a lender that has adopted the commitments is not thereby prevented from pursuing a director's personal assets if the company defaults. Independent legal advice is encouraged, not compulsory, and a director can still choose to sign without taking it. Nothing in the commitments removes the need to read the guarantee itself and understand what it says the lender can do and when.

None of this is legal advice, and a director weighing up a guarantee on a specific loan should take independent legal advice on the document itself before signing it.

If the company cannot pay

From a missed payment to a demand on the guarantee

A personal guarantee only becomes real once the company stops paying. Before that point it sits in the background; afterwards, it moves the lender from chasing the company to chasing the director. The steps below set out that sequence in order.

  1. A mortgage payment is missed

    The lender's first move is to the company, the borrower named on the loan. Arrears are recorded and the company is given the chance to bring the account up to date.

    At this point the guarantee has not been called on at all.

  2. The arrears either clear or the loan goes into default

    What happens next depends on whether the company puts the account right within the period the loan agreement sets out for doing so.

    Arrears are cleared

    the account returns to normal and nothing further happens under the guarantee.

    Arrears continue

    the lender can treat the whole loan as in default and demand repayment of the full balance.

  3. The lender looks to the company and the property first

    Because the loan is secured against the building the business bought, the lender's usual next step is to recover from that security. This can mean appointing a receiver to sell the premises, or realising any other assets the company has pledged against the loan.

    The property is normally the first thing the lender turns to, since it was pledged as security for the loan itself.

  4. A shortfall triggers demand under the guarantee

    If selling the property and any other company assets does not cover the debt in full, the lender can issue a formal demand to the director personally for what remains outstanding. What that demand can cover depends on the wording of the guarantee itself, since guarantees can be written to cover the full shortfall or a stated limit.

  5. What the director faces once the demand is made

    A demand under the guarantee is a formal step. If it is not paid, the lender can pursue it through the courts, which can lead to a county court judgment, a charging order over property the director owns personally, or bankruptcy proceedings.

The order and timing of these steps are set by the loan agreement and the guarantee document, and both can vary between lenders.