What security or personal guarantees might lenders require?

Quick answer: what lenders may ask for, and why

Lenders may require business assets as security and/or a director’s personal guarantee (PG) to reduce the risk of non‑repayment. Security can include a fixed charge over property or equipment, a floating charge over stock and other moveable assets, a debenture across the company, or an assignment of receivables under invoice finance. If security is limited or the business is early‑stage, lenders often request a PG from owners or directors, which makes the individual personally liable if the company cannot pay.

Requirements vary by facility type, loan size, trading history, sector, and credit profile. Strong cash flow, tangible assets, and clean credit may reduce the need for PGs, whereas thin balance sheets or rapid growth can increase the likelihood of security or guarantees being requested.

Best Business Loans does not lend or give advice. We introduce you to lenders or brokers who may outline their security and guarantee requirements based on your circumstances.

Understanding security and personal guarantees

What counts as “security” in UK business lending?

Security is something a lender can take a charge over so it has priority to recover funds if the borrower defaults. Common forms include commercial property, vehicles, machinery, plant, fixtures, stock, and receivables. Security gives lenders comfort to offer larger facilities, longer terms, or sharper pricing compared with unsecured options.

Security can be specific (e.g., a fixed charge over a forklift financed under asset finance) or general (e.g., a debenture covering all present and future assets). The more liquid and stable the asset’s value, the more likely a lender is to accept it as collateral.

What is a personal guarantee (PG)?

A personal guarantee is an individual promise to repay the debt if the company cannot. It is typically requested from directors or major shareholders of limited companies. PGs are common on “unsecured” business loans, merchant cash advance, overdrafts, and some asset facilities where asset values are volatile or loan‑to‑value (LTV) is high.

PGs can be joint and several, meaning each guarantor can be pursued for the full outstanding debt. Many lenders require independent legal advice before a PG is signed to confirm you understand the obligations.

Why do lenders ask for security or a PG?

Security improves potential recovery if the borrower fails, which can lower risk and sometimes price. PGs align the borrower’s and lender’s interests and may be requested when assets are insufficient to cover the exposure. Lenders will weigh trading history, margins, affordability, and sector dynamics before deciding.

Common forms of security in UK business finance

Fixed charges over property and equipment

Commercial property charges are widely used for larger term loans and refinance facilities. Lenders may rely on a formal RICS valuation and set a maximum LTV threshold to factor in market volatility. They cannot secure a business facility against a director’s main residence in certain government‑backed schemes, but a lender may still seek a PG subject to scheme rules.

Asset finance uses the equipment itself as collateral via a chattel mortgage or title retention. Lenders favour “hard assets” with serial numbers and resale markets, such as HGVs, CNC machines, and yellow plant. Soft assets can be funded but may attract shorter terms, higher deposits, or a PG.

Floating charges and debentures

A floating charge covers classes of moveable assets like stock and fluctuating debtors. It “crystallises” on default and turns into a fixed charge over the assets then held. A debenture combines fixed and floating charges across the company and is often registered at Companies House.

Debentures can restrict your ability to raise further finance without the lender’s consent. If you expect future borrowing, negotiate intercreditor arrangements or carve‑outs for specific assets.

Invoice finance: assignment of receivables

With invoice finance, your sales ledger is assigned to the funder as security. Concentration limits, debtor quality, and disputes impact advance rates. Directors may still be asked for a PG, particularly with younger ledgers or where contractual terms are complex.

Some lenders also request debtor warranties, trust accounts for collections, and notification clauses to strengthen control of payments. Trade credit insurance is sometimes used to mitigate counterparty risk.

Card takings and cash deposits

Merchant cash advance providers typically secure against future card receivables via assignment and a split of card settlements. They may still request a PG where trading stability is uncertain. A cash deposit or escrow can also serve as collateral in short‑term lending or trade finance structures.

Definition snapshot: fixed vs floating charges

• Fixed charge: Attaches to a specific asset. You usually cannot sell or dispose of the asset without the lender’s consent.
• Floating charge: Hovers over a changing pool (stock, debtors). You can trade normally until default, when it “crystallises.”
• Debenture: Often a combination of fixed and floating charges registered over the entire business.

Personal guarantees explained in depth

Who is typically asked to sign?

Lenders often request PGs from directors with control, typically those owning significant shareholdings or holding key decision‑making roles. If there are multiple directors, a lender may seek joint and several guarantees from all. Some providers will allow a capped PG per director to share the exposure fairly.

Occasionally, a third‑party guarantor (such as a parent company) is considered, but lenders prefer guarantees from individuals closely tied to the trading business. Where there is a corporate cross‑guarantee, intercompany agreements should be reviewed for risk.

How big can a PG be, and can it be capped?

Many PGs are for the full facility amount plus costs and interest, especially for smaller loans. You can negotiate a cap, a time limit, or a step‑down as the balance reduces or performance improves. Lenders may limit the PG to a percentage of the facility or ask for a secondary PG if multiple directors are involved.

Where a PG is capped, ensure the documentation clearly states the cap and whether it includes fees and enforcement costs. Always check whether the PG is a guarantee and indemnity, as indemnities can be wider in scope.

Independent legal advice and spousal consent

Many lenders require a certificate of independent legal advice to ensure the guarantor understands the risks. This is for your protection and helps the document stand up to scrutiny. If there are joint assets or shared property, lenders may ask for spousal or partner consent to acknowledge the risk of enforcement against personal assets.

Signing a PG is a serious commitment and can affect your personal credit and assets if enforced. Consider independent legal and accounting advice before agreeing.

Personal Guarantee Insurance (PGI)

Specialist insurers offer PG insurance that can cover a portion of the shortfall if a PG is called. Cover typically ranges from a percentage of the liability, with premiums reflecting risk and sector. PGI does not remove your obligations, but it may cushion the financial impact of a worst‑case scenario.

Insurers may require financial statements, facility documents, and evidence of good governance. Costs should be weighed against the benefit of risk transfer.

Government‑backed schemes: what to know

Under UK government guarantee schemes administered via the British Business Bank, rules can limit the type of security lenders take. For example, lenders cannot take a charge over a principal private residence for scheme facilities. PGs may be permitted, but the exact approach varies by scheme, lender, and facility size.

Always review the latest scheme guidance and lender terms. Scheme support is a guarantee to the lender, not to the borrower, and you remain fully liable for repayment.

How lenders assess and enforce security

Risk factors that increase the likelihood of security or PGs

Newer companies, lower profitability, thin equity, or volatile sectors increase the need for security or PGs. Higher loan sizes, longer terms, and refinance of existing debt can bring additional collateral requirements. Past credit issues or tax arrears will also heighten a lender’s risk controls.

Conversely, strong margins, stable cash flow, and asset backing can reduce reliance on PGs. Transparent forecasting, up‑to‑date management accounts, and good governance can further improve outcomes.

What happens if a default occurs?

If payments are missed and remedies fail, lenders may appoint receivers or administrators depending on the security and the situation. For asset finance, the lender can repossess the funded equipment. For invoice finance, collections can be taken over and debtors notified.

If a PG is in place, the lender can issue a demand on the guarantor for the outstanding balance after applying recoveries. Legal action can lead to County Court Judgments and enforcement against personal assets. Seek professional advice early if you face cash‑flow pressure.

Sector context and examples

In construction, lenders focus on contract quality, stage payments, and debtor strength; PGs are common due to retentions and dispute risk. Manufacturers may secure finance against machinery and receivables, with debentures used to manage floating asset risk. Logistics operators often use vehicle assets and fuel card data to support facilities.

For businesses with significant property or fit‑out costs, such as hospitality, lenders may prefer hard‑asset security or landlord waivers. See practical sector guidance in our resource on hotels business loans and finance options.

Preparing your application and reducing personal exposure

Ways to reduce or avoid a PG

Offer stronger collateral such as unencumbered equipment or commercial property to shift reliance away from a PG. Negotiate a capped or time‑limited PG that steps down as the balance reduces. Improve affordability metrics through sensible loan sizing, realistic terms, and robust cash‑flow forecasts.

Consider funding structures that primarily rely on assets, such as asset finance or invoice discounting, rather than general unsecured terms. PG insurance can further mitigate residual risk but will add cost.

Documents that help lenders say “yes”

• Year‑end accounts, recent management accounts, and cash‑flow forecasts.
• Asset register with serial numbers, valuations, and insurance details.
• Sales ledger ageing, top customer concentrations, and dispute logs.
• Existing charges report from Companies House, plus any intercreditor details.
• Land Registry title numbers, lease agreements, or landlord contact for waivers.
• Director Statements of Assets and Liabilities if a PG is requested.

Alternatives to secured or guaranteed lending

Asset finance can fund vehicles and machinery with the asset as primary security. Invoice finance monetises receivables without a large PG in some cases. Trade finance or supplier credit can support imports and inventory without long‑term debt.

Some businesses also consider grants, equity investment, or retained profits for growth. The “best” option depends on your risk appetite, timelines, and balance sheet strategy.

Your next step with Best Business Loans

We do not supply loans or provide advice. We help UK businesses get introduced to suitable lenders or brokers based on your sector, needs, and eligibility.

Complete a free Quick Quote to be matched with providers who can outline their security and guarantee requirements upfront. There is no obligation to proceed, and you remain in control of any next steps.

Get your free Quick Quote or eligibility check to explore options quickly and securely.

Important information and fair‑marketing notice

All finance is subject to status, affordability checks, and provider terms. Security or personal guarantees may be required. Your assets may be at risk if you fail to keep up repayments.

Nothing on this page is financial, legal, tax, or accounting advice. Consider obtaining independent professional advice before entering into any agreement.

Key takeaways

• Lenders commonly require security (property, equipment, receivables) and/or a personal guarantee from directors.
• Debentures, fixed and floating charges, and invoice assignments are standard tools to secure facilities.
• PGs can sometimes be capped, time‑limited, or mitigated using PG insurance.
• Government‑backed schemes may restrict taking a charge over a principal private residence, but borrowers remain fully liable.
• Preparation, strong forecasts, and asset detail can improve terms and reduce reliance on PGs.

Updated October 2025