Understanding Personal Guarantees – Risks and Alternatives

Personal guarantees are one of the most misunderstood aspects of commercial finance. Many landlords sign them without fully appreciating the implications, while others reject deals outright because guarantees are required. The reality is more nuanced. Understanding the risks and the possible alternatives is key to making informed decisions.

What Is a Personal Guarantee?

A personal guarantee (PG) is a legal commitment by an individual – usually a company director or partner – to repay a loan if the borrowing business cannot. It effectively transfers some of the risk from the lender to the guarantor personally.

For landlords, this often means that if a company or LLP defaults on a commercial mortgage, the lender can pursue the guarantor’s personal assets, including property and savings.

Why Lenders Require Them

Lenders use personal guarantees to reduce their risk. They show the borrower has “skin in the game” and a strong incentive to manage repayments responsibly. Guarantees are particularly common where:

• The borrowing entity is newly incorporated or has limited trading history.
• Loan-to-value (LTV) is high.
• The property type or project carries additional risk.

The Risks for Landlords

Signing a personal guarantee is a serious commitment. Risks include:

• Exposure of personal assets, including the family home, if the business cannot repay.
• Legal costs and stress in the event of default.
• Potential impact on personal credit ratings if enforcement occurs.

Many landlords underestimate how wide-ranging the lender’s rights can be under a guarantee.

Possible Alternatives

While guarantees are common, there are situations where alternatives may be negotiated:

• Limited guarantees – capping liability to a specific amount or percentage of the loan.
• Guarantees supported by insurance – policies exist to cover part of the exposure in the event of default.
• Additional security – offering charges over other assets instead of, or alongside, personal guarantees.
• Stronger covenants – some lenders may reduce guarantee requirements if liquidity buffers or financial reporting are strengthened.

Negotiating these alternatives requires specialist knowledge and lender relationships.

Practical Examples

• A landlord secures a £2m commercial mortgage with a limited guarantee capped at 25% of the loan, protecting personal exposure.
• A family investor uses guarantee insurance, ensuring that if their company defaults, their liability is partly covered by an insurance policy.
• An HMO operator negotiates reduced PG exposure by offering an additional charge over an unencumbered property in the portfolio.

The Role of NACFB Brokers

NACFB brokers help landlords understand guarantee terms in plain English and negotiate with lenders to reduce exposure where possible. They know which lenders are flexible, what alternatives are acceptable, and how to package deals to achieve more favourable terms.

Conclusion and Takeaway

Personal guarantees are part of modern commercial finance, but they do not have to expose landlords unnecessarily. With the right broker and lender, it is often possible to limit liability, use insurance, or substitute other forms of security. Informed negotiation makes all the difference.

Next Steps

If you would like to explore your options around personal guarantees, please complete the short form below and an NACFB member broker will be in touch.

Published: 3 December 2025