Thinking About Signing a Personal Guarantee for Your Limited Company’s Borrowing? Read This First!

If your company is short of cash, it may be offered a loan; but only if you sign a personal guarantee.

This can feel like the only way forward. However, it’s often a sign that the lender believes the company may struggle to repay.

Before you agree, it’s important to understand what this really means and what other options your company may have.

More borrowing does not always fix company debt or cash flow issues. In many cases, it just delays the problem and makes it bigger.

Why Lenders Ask for a Personal Guarantee

A personal guarantee means you promise to repay the company loan personally if the company cannot.

That means your personal assets such as savings, property or other valuables could be at risk if the company fails to repay.

Lenders usually ask for this when they see higher risk. It tells you something important; they are not fully confident the company can repay on its’ own.

Most directors set up a limited company so it is treated as a separate legal entity, with business debts kept separate from personal finances. A personal guarantee removes that separation for the borrowing you sign for.

These Loans often come with High Interest

Company loans that require personal guarantees can often be more expensive.

They may have:

• Higher interest rates

• Extra fees

• Shorter repayment terms

• Bigger monthly payments

This puts more pressure on your company’s cash flow at the exact time it is already tight.

What looks like a lifeline could end up increasing the strain.

Are You Solving the Problem or Delaying It?

Borrowing more when your company is already in debt often just pushes the problem into the future.

Some directors call this “kicking the can down the road.”

You may get short-term relief, but:

• The original debts are still there

• Total borrowing is now higher

• Monthly repayments increase

• Cash flow stays under pressure

• Creditor action can still happen

If the root problem isn’t fixed, more borrowing rarely fixes it.

Be Careful with “Company Debt Consolidation” Loans

Some lenders offer loans to consolidate existing company debts into one new payment. This can sound attractive, especially if the new monthly payment looks lower than what you are currently paying.

But a lower payment does not always mean a better deal.

Often:

• The repayment term is longer

• The interest rate is higher

• Total borrowing costs increase

• Cash flow may still be too tight

• The payments may still be unaffordable

Many directors agree to company consolidation loans without a full review of the company’s cash flow and finances. Without that review, it’s hard to know if the new payment is truly sustainable.

A loan that looks easier today can still become a problem later.

At Company Debt Experts, we offer a complimentary cash flow review; that way you’ll be able to work out if the new company loan repayments are affordable and sustainable.

Consider Company Debt Restructuring First

Before taking on more debt, it’s worth checking whether your company could restructure what it already owes.

Debt restructuring means changing how company debts are repaid so the company has a better chance to recover.

This can include:

• Asking creditors for more time to pay

• Spreading payments over longer periods

• Agreeing lower monthly repayments

• Reducing pressure from creditors

• Improving cash flow without new borrowing

The goal is to make the debt manageable, not bigger.

Talk to a Company Debt Expert First

At Company Debt Experts, we help directors review all company debt options before they commit to new borrowing or personal guarantees.

If formal restructuring is needed, we can introduce you to a licensed Insolvency Practitioner who works with limited companies to put corporate insolvency solutions in place.

The earlier you get advice, the more options your company usually has.

A Quick Conversation can make a Big Difference

Before you sign a personal guarantee or accept high-interest borrowing, get a second opinion.

You may have more options than you think.

More borrowing doesn’t always solve limited company debt. Restructuring often can.