Mr says
Often, yes. When a company or trust borrows, lenders commonly ask the directors, and sometimes property owners, to sign a personal guarantee. It means you personally promise to repay the debt if the business can't. For unsecured business loans a guarantee is almost standard, because there's no property behind the loan. Read it carefully, understand what it covers, and consider independent legal advice before signing.
Key points
- Guarantees are common for company and trust borrowers.
- Unsecured business loans usually require directors' guarantees.
- A guarantee can put your personal assets within reach.
- Know what's covered, for how long and how to be released.
- Usually asked of
- Directors, trustees, property owners
- Most common with
- Unsecured business lending
- Before signing
- Read it; consider legal advice
What is a personal guarantee, in plain English?
It’s a promise. You promise the lender that if the business doesn’t repay the loan, you will. That promise is backed by everything you own personally — which is why it’s one of the most important pieces of paper in any business loan.
Mr puts it simply: a guarantee turns a business debt into your debt the moment the business can’t pay.
Why do lenders ask for one?
Because companies and trusts are separate from the people who run them. If a company borrows and fails, the lender can only chase the company’s assets — unless someone has guaranteed the debt. A guarantee closes that gap.
It also does something subtler: it tells the lender the people running the business have skin in the game. Directors who’ve guaranteed a loan tend to watch it closely.
When will I usually be asked?
| Situation | Guarantee likely? |
|---|---|
| Unsecured loan to a company | Almost always, from the directors |
| Property-secured loan to a company | Commonly, from directors and property owners |
| Loan to a trust with a corporate trustee | Commonly, from the trustee’s directors |
| Loan to a sole trader | Not needed — a sole trader is already personally liable |
| Property owned by someone who isn’t a director | That owner usually signs a guarantee and mortgage |
For sole traders, business.gov.au is blunt: the structure has unlimited liability and personal assets are already at risk. A guarantee adds little there — see sole trader business loans. For trusts, the trustee carries the legal responsibility, which is why lenders look to the trustee and its directors — see borrowing through a family trust.
What should I check before I sign?
- What does it cover? Just this loan, or all money you owe the lender now and in future?
- Is it limited? A capped amount or an unlimited guarantee?
- Is it joint and several? If there are several guarantors, can the lender chase any one of you for the whole amount? (Usually yes.)
- Is property involved? Does the guarantee come with a mortgage or caveat over your home?
- How do I get released? Repayment, refinance, a formal release — what’s the process?
- What triggers it? Missed repayments, insolvency of the business, breach of a covenant?
If any wording is unclear, the jargon decoder translates the common terms, and our guide to questions to ask before signing a loan offer covers the rest.
Should I get legal advice?
Mr’s view: yes, especially if the guarantee is unlimited, involves your home, or you’re guaranteeing for a business you don’t control day to day. Many lenders require non-borrowing guarantors — a spouse who co-owns the home, for example — to get independent legal advice and a certificate before they sign. That’s a protection for you, not a box-ticking chore.
Can I avoid giving a guarantee?
Sometimes, partially. Options worth discussing:
- Offer property security instead of, or alongside, a limited guarantee. Some lenders will accept a capped guarantee when there’s strong security.
- Borrow a smaller amount that the business’s own strength supports.
- Negotiate a limit — a guarantee capped at a specific figure rather than unlimited.
But for most unsecured business lending, a directors’ guarantee is part of the deal. Our comparison of secured and unsecured loans shows how the two approaches shift the risk.
An illustrative example
Two directors of a Melbourne printing company want an unsecured $120k facility. The lender asks both to guarantee it. One director is semi-retired and wants to limit his exposure. After discussion, the lender accepts a guarantee capped at half the facility from him and an unlimited one from the active director. Not every lender will do this — but it was worth asking.
What’s the difference between a guarantee and security?
They’re often given together, which is why they get confused. A guarantee is a promise by a person to pay the debt if the borrower doesn’t — it makes you personally liable, and the lender can pursue your personal assets generally. Security is a specific asset the lender holds rights over, such as a mortgage or caveat on a particular property.
You can give one without the other. An unsecured business loan might come with directors’ guarantees but no mortgage. A property-secured loan might involve a mortgage from the property owner and guarantees from the directors. Knowing which you’re giving — and over what — is the heart of understanding your exposure.
Does a guarantee show on my credit file?
Being a guarantor can involve a credit check on you, and some guarantees for business credit can be recorded. More importantly, if the business defaults and the lender calls on the guarantee, it becomes your debt, with everything that follows. Treat a guarantee as if you were borrowing the money yourself — because, if things go wrong, you effectively are.
What happens to the guarantee when the loan ends?
Ask the lender to confirm in writing that the guarantee has been released once the loan is repaid, particularly if it was worded to cover “all money” owed to that lender. Keep that letter with your business records. It’s a small step that prevents confusion if you borrow from the same lender again.
Questions about guarantees on your loan?
Ask Mr in about 60 seconds and mention who the directors and property owners are. There’s no credit check to enquire, your details stay with one specialist rather than being shopped around, and a real person will explain what any lender is likely to ask you to sign — before you’re handed the pen. Accurate details on ownership mean fewer surprises at signing. See if you qualify.
Frequently asked questions
If I run a company, aren't my personal assets protected?
A company is a separate legal entity, which is part of why lenders ask for guarantees. Signing one deliberately steps outside that protection for the guaranteed debt.
Can a guarantee be limited?
Sometimes. Some guarantees are limited to a specific amount or loan, others cover all money owed to that lender. Ask which kind you're being offered and whether a limit is negotiable.
What happens if I leave the company?
Resigning as a director doesn't automatically release you from a guarantee you've signed. You generally need the lender to formally release you, often when the loan is repaid or refinanced.
Can my spouse be asked to guarantee?
If your spouse is a director or co-owns the property being offered as security, they may be asked to sign. Lenders often require non-borrowing guarantors to get independent advice first.