Most unsecured business loan providers now require directors to sign a personal guarantee as standard practice, and that includes both high-street banks and the majority of alternative lenders. However, options without a personal guarantee do exist, and there are also routes that significantly reduce your personal exposure. This guide explores what’s available and how to move forward, whatever your situation.
Why Do Lenders Ask for Personal Guarantees?
A personal guarantee is a legally binding agreement where a company director promises to repay a loan if the business itself can’t. It’s a commitment that makes the director personally liable for repaying the loan if the business defaults or becomes insolvent. It’s the lender’s safety net, and it exists because unsecured business loans don’t involve any specific assets being pledged as security. Without property, equipment or stock to fall back on, the lender is taking a risk, and a personal guarantee is how they manage that exposure. Some lenders may request the full loan amount as a guarantee, while others will ask for as little as 20%.
During the pandemic, government-backed schemes changed the landscape temporarily. CBILS prohibited personal guarantees entirely on facilities under £250,000, and capped recoveries at 20% of the outstanding balance for larger loans. The Recovery Loan Scheme continued to provide government-backed lending until it closed on 30 June 2024, when it was replaced by the Growth Guarantee Scheme. However, under the current Growth Guarantee Scheme, personal guarantees can be taken at the lender’s discretion, in line with normal commercial practice, meaning the market has largely returned to its previous position.
Can You Get an Unsecured Business Loan Without a Personal Guarantee in the UK?
In the current market, unsecured business loans without a personal guarantee are less common than those that require one, but they are available. Most lenders offering unsecured loans require directors to sign a personal guarantee, though specialist lenders and certain product structures can offer routes around it.
But the lending market shifts constantly. New products emerge, government policy changes, and lenders adjust their criteria. What isn’t available this quarter might reappear in the next. This is one of the reasons working with a specialist broker is valuable; they track the market in real time and can tell you immediately whether anything has changed.
Some lenders cap the personal guarantee at a percentage of the loan rather than requiring a full, unlimited guarantee. The British Business Bank explains that guarantees can be “limited” (capped at a pre-determined monetary amount) or “unlimited” (covering the entire loan plus interest and costs). If your concern is about the scale of your personal exposure rather than the concept itself, a capped guarantee will offer a workable middle ground.
What are the Alternatives?
Several options can reduce or remove the need for a personal guarantee entirely. Alternatives to personal guarantees are secured loans, invoice finance and asset-based lending.
Asset finance allows you to borrow against equipment, vehicles, machinery or other tangible business assets. Because the lender has a charge over a specific asset, they’re less likely to require a personal guarantee on top. Funding Bay offers a range of asset finance products, including hire purchase, asset refinance and sale-and-leaseback arrangements.
Invoice finance is another route that sidesteps the personal guarantee issue for many businesses. With invoice finance, you release cash tied up in your unpaid invoices. The invoices themselves act as the security, which means the lender’s risk is spread across your debtor book rather than resting on your personal shoulders. Invoice discounting and invoice factoring both work on this principle.
A revolving credit facility secured by a debenture over business assets is worth exploring, too. If you’re happy to have a debenture over your business assets, there are products you could explore that don’t require a personal guarantee from directors. The trade-off is that your business assets are at risk rather than your personal ones; for many directors, that’s a more acceptable position.
Merchant cash advances are repaid through a percentage of your card terminal revenue, so they’re tied to the performance of the business rather than to you personally. Eligibility and guarantee requirements vary between providers, but the structure of the product means some lenders are more flexible on the personal guarantee question.
If you do end up signing a personal guarantee, it’s worth knowing that personal guarantee insurance exists. PGI policies can cover up to 80% of the guaranteed debt, providing a significant safety net if the worst happens. It doesn’t remove the guarantee, but it reduces the personal financial risk.
What If You’ve Already Been Turned Down by Your Bank?
Banks have rigid lending criteria, and don’t accommodate businesses with CCJs, previous CVAs, thin trading histories or anything that sits outside a narrow set of parameters.
The alternative business finance market serves businesses that may not meet mainstream bank criteria. Many specialist brokers work with lenders that assess cases outside standard high-street banking criteria. Funding Bay works across invoice finance, asset finance, secured lending, and revolving credit facilities. Some of those lenders focus specifically on businesses that mainstream banks have turned away. They assess applications differently, looking at trading trajectory, current cash flow and the strength of your debtor book rather than fixating solely on a credit score or balance sheet.
A commercial finance broker can be particularly useful here. A broker can help identify lenders whose criteria align with the business’s trading profile and security position.
Understanding What Lenders Actually Look At
Most lenders evaluate several factors: your business and personal credit scores (sometimes referred to as a Delphi score), your current debt obligations, EBITDA and profitability, sector risk, and length of trading history.
For unsecured loans specifically, a minimum of two years’ trading history is usually expected. Lenders will want to see your most recent filed accounts, twelve months of bank statements, and up-to-date management accounts, including a balance sheet and profit-and-loss statement.
Weaker financial metrics do not necessarily prevent access to funding, although pricing and structure may differ. Different lenders have different thresholds. Pricing will vary significantly depending on risk profile, trading history, security, and sector. Lower-risk cases may access materially lower pricing than businesses with adverse credit or weaker financials.
How to Move Forward
If you’re looking for funding and want to minimise your personal exposure, get clarity on what the funding is needed for and what assets or revenue streams your business has that could serve as alternative security. Understanding the available security and intended use of funds will materially improve the quality of lender discussions.
