Will lenders require personal guarantees or other security?
Short answer
Yes — many commercial lenders and brokers commonly require some form of security or a personal guarantee, though the requirement varies by product, lender risk appetite and the strength of your business. Some facilities can be offered unsecured or with less onerous security where the business has strong cash flow, tangible assets, or where the lender accepts risk-sharing structures. At Best Business Loans we help you understand likely requirements and match you with providers where personal guarantees or specific collateral are more or less likely to be requested.
Why lenders ask for security or personal guarantees
Lenders use security and personal guarantees to reduce the risk of loss if a borrower cannot repay. Security gives the lender a legal right against assets, while a personal guarantee creates a direct legal obligation on an individual to repay if the business cannot. Both tools change lender behaviour: they often permit higher limits, longer terms or lending to riskier businesses than would otherwise be possible.
Different lenders weigh security and guarantees differently based on their product types and policies. Specialist asset or invoice finance providers often prefer asset-backed security such as equipment or invoices. Relationship banks and alternative lenders may ask for director guarantees where the business has limited tangible assets. This means the requirement is both product- and borrower-specific.
Knowing what a lender typically requires helps you target the right providers and avoid wasting time on unsuitable applications. Best Business Loans’ AI matching filters lenders by typical security preferences to speed this process and surface options that fit your circumstances.
When personal guarantees are most likely
Personal guarantees are commonly required when a business is a small limited company, a start-up with limited trading history, or a business with weak or volatile cash flow. Lenders want a recovery route beyond the business for higher-risk borrowers. This is especially true for unsecured business loans and some overdrafts.
For higher-value facilities, such as large unsecured working capital lines or facilities where the lender cannot take first charge over core assets, personal guarantees are more commonplace. Directors’ guarantees may be requested jointly and severally, meaning lenders can pursue any guarantor individually for the full outstanding debt. That can have serious personal consequences, so early clarity is essential.
Regulated consumer credit has strict rules on guarantees and suitability. For business finance to UK limited companies, the rules are different and many lenders expect guarantees unless strong collateral or corporate covenant exists. We always recommend you check the exact terms before progressing to a formal application.
Common types of security and what each means
Fixed charge: a legal charge over a specific asset (for example a factory or major machinery) that prevents disposal without lender consent. Fixed charges provide strong lender protection but can limit the business’s ability to sell that asset in future.
Floating charge: a security over a changing pool of assets such as stock or receivables. It “floats” while the company trades and can crystallise on default. Floating charges are useful for supporting working capital facilities but rank behind fixed charges and preferential creditors in insolvency.
Debenture: a composite document that typically creates fixed and floating charges and records the lender’s overall security package. Debentures are common for larger or more complex facilities and often include covenants and reporting obligations.
Mortgage or legal charge on property: used for lending secured on commercial buildings or freehold/leasehold property. Property security is powerful for lenders and usually reduces the likelihood of personal guarantees, though some lenders seek both property security and individual guarantees.
Asset-specific security: hire purchase or chattel mortgages secure vehicles and individual equipment. These are common with asset finance where the financed item itself secures the debt. Invoice finance: the lender takes assignment of invoices as collateral and may also register a debenture depending on the provider. For more on invoice funding mechanics see our detailed guide on invoice finance.
Personal guarantee (PG): an individual promise to meet business debts if the business cannot. PGs can be limited (caps or time-limited) or unlimited, and they may be supported by indemnities, security interests over personal assets, or called only after the lender exhausts corporate remedies.
How to reduce, limit or avoid personal guarantees
Prepare strong financial evidence and a clear business plan to persuade lenders to rely on business strength rather than personal security. Demonstrable history of profitability, healthy cash flow forecasts and good debtor credit profiles reduce perceived risk. Good preparation often reduces the appetite for PGs and can secure better commercial terms.
Offer alternative security where appropriate, such as property, specific high-value assets or a debenture that limits interference with day-to-day trading. In many cases asset-backed lending removes or reduces the need for personal guarantees because the lender’s recovery is focused on identifiable collateral.
Negotiate PG terms: seek caps, sunset clauses, limitations to specific liabilities, or carve-outs for certain events. Use legal advice to define joint-and-several liability, carve-outs for insolvency proceedings, and conditions precedent to enforcement. Lenders will sometimes accept limited or proportionate guarantees in return for slightly higher pricing.
- Ask for limited duration guarantees (e.g., 12–36 months)
- Seek a turnover or asset-based cap linked to loan reduction
- Negotiate trigger points for enforcement and notice periods
Consider credit insurance, parent company support or cash reserves to improve the credit profile and reduce the lender’s reliance on personal guarantees. Where multiple directors exist, negotiate proportional rather than joint-and-several liability to limit individual exposure.
Practical steps, compliance notes and next actions
Step 1: Identify the product you need and estimate the realistic loan size and term. Different products attract different security structures, so early clarity helps target the right providers. Use our Quick Quote to summarise your needs in minutes and get matched faster.
Step 2: Gather evidence lenders will request — management accounts, cash flow forecasts, VAT returns, asset lists and ownership documents. Providing accurate documents speeds decision-making and improves the chance of avoiding onerous personal guarantees.
Step 3: Use our matching platform to connect with lenders or brokers that specialise in your sector and target security appetite. We introduce you to providers who are actively lending in your industry and who may offer more favourable security terms. For example, specialist invoice finance providers can often fund against receivables with minimal director security; learn more about invoice funding here.
Compliance note: Best Business Loans is an independent introducer and not a lender or regulated financial adviser. We are not FCA-authorised to provide regulated advice. We aim to provide clear, fair and non-misleading information to help you choose where to apply. Always obtain independent legal and regulated financial advice before signing guarantees or security documents.
Key takeaways
Personal guarantees and security are common in UK business lending but not universal. Lenders take a pragmatic view: strong business cash flow, tangible collateral and sector fit reduce the likelihood or scope of PGs. Where guarantees are requested, negotiate limits, sunset clauses and alternative security, and always obtain legal advice before signing.
Ready to check your options? Submit a Quick Quote for a free, no-obligation eligibility check and Decision in Principle. Our AI matching will show lenders and brokers whose security preferences are aligned with your situation. Start the form now to get tailored introductions and reduce unnecessary risk.
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