Quick answer
A personal guarantee is your promise to repay a business's debt if the business doesn't. Lenders usually ask directors of small companies and trustees' directors to sign one. It can be unlimited or limited to an amount, and it may be backed by a mortgage over your property. If the business defaults, the lender can pursue you personally for what the guarantee covers.
Key points
- A guarantee makes you personally liable for the business's debt if it doesn't pay.
- Small company directors are almost always asked for one.
- Guarantees can be unlimited, or limited to a set amount — read which you're signing.
- A guarantee can be secured by your home, which is a separate and bigger commitment.
- Who signs
- Usually every director
- Types
- Unlimited or limited
- Can be secured
- By a mortgage over your property
- Ends
- When the debt is repaid or the lender releases you
Setting up a company is often sold as a way to protect your personal assets. Then you apply for your first business loan, and the lender hands you a personal guarantee to sign. Suddenly the wall between you and the company has a very large door in it.
That’s normal — but it’s not a formality. Here’s what a personal guarantee is, what it can mean for you, and what to ask before you sign.
What is a personal guarantee?
A personal guarantee is a promise, made by you personally, that if the business doesn’t repay its loan, you will. The business (usually a company or a trustee company) is the borrower. You are the guarantor.
business.gov.au explains that a company is a separate legal entity and that shareholders have limited liability. A personal guarantee is how lenders bridge that gap for small companies: it gives them someone real to recover from if the company fails.
Why do lenders ask for one?
For a small or family company, the lender knows:
- the company’s assets may not cover the debt if things go wrong
- the directors control where the money goes
- a director with something personal at stake tends to make careful decisions
So guarantees from directors are close to universal in small-business lending. business.gov.au’s loan guide lists “who will guarantee your loan if you need a guarantor” among the things to think about before you apply.
What types of guarantee are there?
| Type | What it means for you |
|---|---|
| Unlimited guarantee | You may be liable for the full debt, plus interest, costs and fees under the loan |
| Limited guarantee | Your liability is capped at a set amount |
| Guarantee for one loan | Covers only the specific facility named |
| “All monies” guarantee | May cover every debt the business owes that lender, now and in future — read carefully |
| Secured guarantee | Backed by a mortgage over your property, giving the lender a direct claim on it |
The last two are where owners get caught out most often. An “all monies” guarantee can stretch much further than the loan in front of you, and a guarantee backed by your home puts the property at risk even though you’re not the borrower. Always check the wording.
What happens if the business can’t pay?
If the business defaults, the lender can call on the guarantee, subject to its terms. That means asking you to pay what the guarantee covers. If the guarantee is secured by your property, the lender may be able to enforce that security.
Separately, company directors have their own duties. ASIC warns that where a company trades while insolvent, compensation claims against directors are “potentially unlimited and could lead to the personal bankruptcy of directors”. A guarantee is a different obligation on top of that. Both are reasons to keep a close eye on the company’s cash flow.
If you’re weighing whether to borrow through your company or in your own name, the personal or business comparison tool shows how guarantees fit into each route.
What should you ask before signing?
- Is it limited or unlimited? If limited, to how much?
- Does it cover only this loan, or all debts to this lender?
- Is it secured by any of my property?
- Who else is guaranteeing? Are we each liable for the whole amount?
- How do I get released? On repayment, refinance, or if I leave the business?
- Should I get independent legal advice? Often the lender will require it. Even when it doesn’t, it’s wise.
When you’re ready to see what a guarantee might look like for your business, start a quick enquiry and ask the specialist to walk you through it.
Can I limit my exposure?
Sometimes. Ideas worth raising:
- Offer specific security — such as a particular property — and ask for the guarantee to be limited accordingly.
- Ask for a cap on the guarantee amount.
- Keep the loan to what’s needed, so the guarantee covers less.
- Separate property — some owners use an investment property rather than the family home. See investment property as security.
Not every lender will agree, but asking costs nothing and a good specialist will know which lenders are more flexible.
Illustrative example: Two directors of a small printing company need $150,000 for a new press. The lender asks for guarantees from both. One director’s home is offered as security; the other’s isn’t. After talking to their lawyers, they ask for the unsecured director’s guarantee to be limited to a set amount, and the lender agrees. Both understand exactly what they’ve signed.
How do I get out of a guarantee later?
A guarantee generally ends when the debt it covers is repaid, or when the lender agrees to release you. If you’re leaving the business, selling it, or a partner is exiting, read releasing a personal guarantee before anything changes hands.
A guarantee explained by a person, not fine print
Signing a guarantee is personal, and you should understand every word. The enquiry takes about 60 seconds with no credit check. It goes to one specialist rather than being passed around a pile of lenders, and they’ll call to explain what any lender is likely to ask of you. Please tell us accurately who the directors are and what property you each own — that’s how we find the right match without surprises later.
Frequently asked questions
Can I refuse to sign a personal guarantee?
You can ask, and some lenders may accept stronger security or a limited guarantee instead. But for small companies, most lenders require guarantees from the directors.
What's the difference between a guarantee and being a borrower?
A borrower is primarily responsible for repaying. A guarantor promises to pay if the borrower doesn't. In practice, a lender can pursue a guarantor once the borrower defaults, under the terms of the guarantee.
Does a personal guarantee show on my credit file?
Being a guarantor may be relevant to your credit information, and lenders often check a guarantor's credit file. If the lender has to call on the guarantee and it isn't paid, that can affect your credit.
Can I get out of a guarantee later?
Only if the debt is repaid or the lender agrees to release you — often through a refinance or when you exit the business. Our guide on releasing a personal guarantee explains more.
Do sole traders sign personal guarantees?
Usually not, because a sole trader is already the borrower and personally liable. Guarantees mostly apply where a company or trust is the borrower.