When Business Debts Become Personal: The Real Impact of Guarantees
UNDERSTANDING PERSONAL GUARANTEES
Personal guarantees can help businesses secure vital funding — but for many directors, they become a lasting burden when things go wrong. As post-COVID loan repayments persist and regulations become stricter, the issue of how much personal risk company directors should bear has never been more pressing.
A personal guarantee is a legally binding promise made by a company director or business owner to repay a debt if their business cannot. It gives lenders added security and confidence to provide finance — particularly to small and medium-sized enterprises.
Commonly attached to business loans, overdrafts, credit cards, leases, and trade finance, personal guarantees are often agreed to during periods of stress or growth. They can feel like a formality at the time — until the company fails.
Under UK law, a director who signs a personal guarantee is personally liable for that borrowing if the company becomes insolvent. In some cases, this means bailiff action, damaged credit records, and long-term financial difficulty, even after the business closes.
A REAL EXPERIENCE: ANONYMISED DIRECTOR INTERVIEW
To understand the reality behind these guarantees, Voscap Business Recovery recently spoke with a former company director who worked directly with our team and has chosen to remain anonymous.
He explained:
“It all started when I applied for two credit cards from well-known lenders. I needed the credit during COVID for cash flow, and I didn’t notice the small print that included a personal guarantee. I felt like it wasn’t made as clear as it should have been but in hindsight, I was probably too disorientated to notice.
I took a risk at a time of stress and worry, just trying to keep the business afloat. But when we had to liquidate, those debts became personally liable — tens of thousands of pounds. It ended with bailiffs at my door, and now I struggle to get credit.
My advice to any director in distress is to seek guidance on all loans and credit cards, check the small print, and take your time — even when you feel flustered.”
His story reflects a reality many directors face: that decisions made in good faith during a crisis can have lasting personal consequences.
THE CURRENT LANDSCAPE: REGULATION AND REFORM
Since the pandemic, personal guarantee enforcement has become a key focus for regulators and lenders alike.
Bounce Back Loans and CBILS: While government-backed schemes were designed to protect directors from personal risk, other forms of lending — particularly credit cards, overdrafts, and merchant finance — were not.
Transparency and consent: The Financial Conduct Authority (FCA) has reinforced the need for clear disclosure of personal guarantee clauses, particularly for small business lending. Following several complaints to the Financial Ombudsman, lenders are being reminded to ensure that terms are fair, proportionate, and fully understood at the time of agreement.
Fair treatment of guarantors: In 2025, the FCA and the Lending Standards Board jointly issued guidance requiring lenders to assess guarantor vulnerability — including financial stress and comprehension of risk — before accepting guarantees.
These changes aim to create a more transparent, balanced environment — one where legitimate recovery for creditors can coexist with fair treatment of directors.
THE CREDITOR’S PERSPECTIVE
Creditors — particularly banks, suppliers, and lenders — rely on personal guarantees as part of responsible lending. They ensure that directors have “skin in the game” and discourage reckless borrowing.
At Voscap, we support the principle that creditors must be protected, but equally that directors deserve clarity and fairness. When both sides understand the terms and obligations, recoveries are more efficient, and disputes are reduced.
Where directors act transparently and early, creditors are often open to structured settlements or repayment plans that avoid aggressive enforcement — protecting relationships and reducing loss.
A BALANCED OUTLOOK: PREPARATION OVER PANIC
Personal guarantees are not inherently bad; they simply require careful consideration. The key lies in awareness and proactive advice.
Directors should:
Seek independent professional guidance before signing any finance agreement.
Keep a record of what was explained by the lender or broker.
Avoid signing guarantees under pressure or urgency.
Act early if the business starts to struggle — once a company becomes insolvent, it’s too late to change the guarantee’s effect.
Creditors, meanwhile, should ensure terms are clearly stated, assess affordability, and maintain professionalism in enforcement — a balanced approach that fosters confidence on both sides.
CONCLUSION: LESSONS FOR DIRECTORS AND CREDITORS
The line between business and personal finance is often thinner than it seems. Directors who misunderstand that boundary can find themselves facing long-term personal consequences — even when their intentions were good.
As this director’s experience shows, personal guarantees may feel like routine paperwork but can have serious implications if the business fails. The best protection is early advice, transparency, and understanding your obligations fully.
Voscap Business Recovery continues to work alongside directors and creditors alike, ensuring that debt recovery is lawful, proportionate, and constructive — supporting resolution, not punishment.
If you’re a director facing personal guarantee pressure, or a creditor seeking fair recovery, our specialists can help you navigate the process confidently and responsibly.
📞 020 7769 6831 | ✉️ help@voscap.co.uk | 🌐 voscap.co.uk
ABOUT VOSCAP
Voscap’s primary objective is to save your business. Our team of experts’ knowledge in restructuring and turnaround assignments is invaluable when assessing the best option available to your needs. With experience spanning several decades, we have the skill and resources to provide viable solutions within all industry sectors. All organisations go through difficult times and we are here to help. From small to multi-million turnover businesses, we have dealt with the most complex of cases. We offer an initial free assessment in analysing your financial position and providing clear and precise advice making your experience a simple non-complicated process.