Personal Guarantee Checklist

Before you start

A personal guarantee makes an individual — usually a director — liable if the business does not pay. It is powerful but only if taken properly, so prepare before you ask. This is a legal instrument; obtain professional drafting and advice.

• A guarantee clause or deed prepared or reviewed by a lawyer.
• Confirmation of who the directors and beneficial owners are.
• A way to verify the proposed guarantor has assets worth pursuing.
• Your policy on which limits or risk levels require a guarantee.

Step 1 — Decide if you need one

1. Consider a guarantee for company customers where the entity itself has limited assets.
2. Weigh it for new businesses, high credit limits or higher-risk accounts.
3. Decide whether you need it before extending credit, not after a problem emerges.
4. Make the requirement clear in your credit application and trading terms.
5. Be ready to offer prepaid terms instead if a director refuses to guarantee.

Step 2 — Choose a guarantor worth having

1. Identify which individual is being asked to guarantee and confirm their authority.
2. Check, where you can, that the guarantor actually holds assets — a guarantee from someone with nothing is hollow.
3. Search the PPSR and public records to see existing claims over those assets.
4. Prefer guarantees from directors or owners with a genuine stake in the business.
5. Be cautious of a guarantor whose only asset is heavily mortgaged.

Step 3 — Sign it correctly and keep it live

1. Use clear wording that names the guarantor, the debtor and the obligations guaranteed.
2. Have the guarantor sign in their personal capacity, ideally witnessed, and consider independent legal advice for them.
3. Give the guarantor a copy and store the original safely.
4. Make sure the guarantee covers future advances, not just the opening balance.
5. Review the guarantee if the business restructures, changes directors or the limit rises.

Common mistakes

• Taking a guarantee from someone who has no assets to back it.
• Vague wording that does not clearly capture the debt or future credit.
• The guarantor signing only as a company officer, not personally.
• No witnessing or evidence of acceptance, leaving it open to challenge.
• Forgetting the guarantee when directors change or the entity restructures.

A well-taken guarantee can be the difference between recovery and a write-off. If a guaranteed debt goes unpaid, a free debt appraisal can assess your options. This is general information, not legal advice — personal guarantees should be drafted and reviewed by a lawyer.