What you need to know about personal guarantees

General information on personal guarantees can be found on the UK Finance Website. Please note, this information is for guidance only. We strongly recommend that all guarantors take independent legal advice before providing a guarantee.

What you need to know about personal guarantees

If you’ve been considering business finance, you may have come across the term ‘personal guarantee’. This page offers general information on personal guarantees to help both you and your personal guarantors understand how they work. Please note, this information isn’t legal or financial advice.

What’s a personal guarantee?

A personal guarantee is, simply put, an agreement between an individual (typically a business owner - shareholder and/or director) and a finance provider, like Funding Circle or an investor on our platform. This agreement outlines that if the business is unable to meet its loan or credit repayments, the individual will become personally responsible for repaying the debt.

Personal guarantees increase the chances of the business being accepted for finance by reducing the risk to the finance provider. This means that finance providers are generally able to lend to more businesses than they might otherwise.

Does Funding Circle take personal guarantees?

Funding Circle offers a range of financial products. These include a FlexiPay line of credit, Cashback credit card, business loans, and loans under the Government’s Growth Guarantee Scheme. Personal guarantees are required on the majority of our products.

We also connect businesses with third-party lenders through our Marketplace when we’re unable to offer the right finance. Personal guarantee requirements vary depending on the product and provider.

Who does the personal guarantee benefit?

At Funding Circle, loans and credit are funded by investors who lend through our platform. For certain products, we invest directly and are the investor. The personal guarantee works to benefit both the investor and Funding Circle. Asking for a personal guarantee means that, should a business be unable to repay their loan, we’re able to recover  liabilities owed by the business to Funding Circle and the investor from the guarantor(s). As a result, investors are more willing to support businesses via our platform.

If I miss a repayment, will my personal guarantee be enforced?

Yes, missing a repayment when it’s due is a breach of your loan or credit agreement and could result in your personal guarantee being enforced. Missing payments can also affect the credit score of a business or incur extra costs. If you think you may miss a payment, or have missed a payment, please get in touch with our customer support team straightaway. We’ll do our best to help.

When does a personal guarantee get enforced?

A personal guarantee may be enforced if we have to default your loan or credit facility. A default occurs when the terms of the loan or credit agreement have been breached. For example, your business fails to make a payment when due. 

Once your business receives the default notice, all personal guarantors will be sent an individual letter of demand and become personally liable for the total debt (inclusive of all interest and costs). We then work with you and any guarantors to recover the full balance.

What are joint and several personal guarantees?

A joint and several personal guarantee means that all personal guarantors are both jointly liable, as well as individually liable, for the total amount of the debt. For example, if there were 3 guarantors, each of those would be fully liable for the total debt due on the facility.

Is my personal property at risk with a personal guarantee?

If your loan was taken out under any of the Government's guarantee schemes (Coronavirus Business interruption Loan Scheme, the Bounceback Loan Scheme, the Recovery Loan Scheme or the Growth Guarantee Scheme), personal guarantees cannot be enforced over principal private residences (such as the guarantor's home).

For other Funding Circle products, the debt can be enforced against the guarantor’s personal property. Should we be unable to agree a settlement plan with the guarantors, it may be necessary to issue proceedings against them and obtain a court judgment. 

As per standard debt recovery processes, we’d then be entitled to secure that court judgment by way of a charging order over the property. We’d continue to work with the guarantors to reach a repayment agreement, with property possession only considered once other options are exhausted. Additionally, if the guarantors are unable to repay the debt in full on demand, Funding Circle may request that the guarantors provide a voluntary fixed charge over their property to secure the total debt owed and support any payment plan.

We’ll always work with the business and guarantors to try and find a suitable repayment method to help them get back on track. Enforcement of a personal guarantee (and potential enforcement against your personal property) is only pursued as a last resort once the loan or credit facility has defaulted.

Importance of Legal Advice 

The information found on this page is provided solely for informational purposes. It shouldn’t  be relied on when deciding whether to provide a personal guarantee, and should not be considered financial or legal advice. We strongly recommend that guarantors take independent legal advice before providing a personal guarantee.