In brief
- Signing a personal guarantee doesn’t affect your credit score on its own. It is a promise to pay if the practice can’t, not a loan in your name.
- While the practice keeps up its repayments, the guarantee isn’t normally reported on your personal credit file.
- It isn’t a monthly outgoing, so it doesn’t normally get in the way of a mortgage, a remortgage or moving house.
- What can show is the lender’s credit search on you when the practice applies and, if the practice stops paying and you can’t meet a call on the guarantee, a court judgment in your own name.
- Personal guarantee insurance can cover part of a called guarantee. It works best taken out early, before there is any sign of trouble.
- Sole practitioners and partners in a traditional partnership are different: the borrowing is already personal, so it sits on your own file.
What is a personal guarantee on a practice loan?
When a limited company or LLP borrows, the practice is the borrower and the debt is recorded against the practice. Because a company is a separate legal person, lenders usually ask its directors or members to give a personal guarantee: a promise that they will repay the lender if the practice cannot. Guarantees are common in practice finance, especially on unsecured practice loans, practice acquisitions, partner buy-outs and succession funding. Lenders often ask for them on working capital, tax and VAT funding and PII premium finance too.
Where two or more principals sign, the guarantee is usually joint and several, which means the lender can ask any one of you for the full amount. Say two partners guarantee a £150,000 practice loan: the lender doesn’t have to split a claim £75,000 each, it can pursue whichever of you it chooses for the lot. Some guarantees are capped at a set figure; others cover the whole debt plus interest and costs. UK Finance, the banking trade body, publishes a short guide to personal guarantees worth reading before you sign.
It is usually the first thing principals ask us when an offer comes back with a guarantee attached, often because they are about to move house or remortgage. We hear it from law firms, accountancy practices, dental, veterinary, GP and pharmacy owners alike, because most practices are owner-managed and lenders look to the principals as well as the practice.
Does signing a personal guarantee affect your credit score?
No, not on its own. A guarantee is a contingent liability: you only owe anything if the practice fails to pay and the lender calls on it. It isn’t a credit account in your name, so it isn’t normally reported to the credit reference agencies and doesn’t change your score while the loan runs normally.
Two things linked to the guarantee can appear on your personal file:
- The lender’s credit search when the practice applies. Lenders usually check the personal credit of the principals who will guarantee. Depending on the lender this is a soft search, which only you can see, or a hard search, which other lenders can see for a period. One search has little effect; several close together can.
- A guarantee that is called and not met. If the practice defaults, the lender can demand payment from you. If that demand goes unpaid and the lender takes court action, the result is a judgment against you personally, and that does go on your file. See below for how long it stays.
A few lenders also report the practice’s loan against the principals who guarantee it. Lenders differ on this, so if it matters to you, ask before you sign. We check this before we put a case to a lender, so it is never a surprise. If you want to see your own file first, you are entitled to a free statutory report from Equifax, Experian and TransUnion; the Information Commissioner’s Office sets out how to ask. Credit searches are only one part of what lenders look for in a practice finance application.
Will a personal guarantee affect a mortgage, remortgage or moving house?
While the practice is up to date with its repayments, it shouldn’t. A mortgage lender’s credit search on you won’t normally find the guarantee, and because it isn’t a monthly payment you make, it doesn’t reduce what you can borrow in the lender’s affordability sums. The same applies to a remortgage, a product switch or a further advance on your home.
If a mortgage application asks whether you have given any guarantees, answer it accurately, as with any question on the form. Most principals of owner-managed practices have signed at least one guarantee, and mortgage lenders know it. What mortgage lenders look at more closely is your income: if you draw from a limited company or LLP, they will usually want your accounts, tax calculations or partnership drawings figures.
Buying the practice’s own building is a different matter: that is business borrowing for the practice, covered in our guide to practice premises finance.
When can a personal guarantee hurt your credit?
A guarantee only starts to affect your personal credit if the practice’s loan goes wrong and you can’t meet the lender’s demand. Lenders generally talk to the practice first, and a formal demand is often followed by an attempt to agree an affordable repayment plan before any court action. Ringing the lender the moment you see a problem coming does more to protect your own credit file than anything else.
In England and Wales, an unpaid claim ends in a county court judgment, which stays on record for six years unless you pay it in full within a month (GOV.UK). Registry Trust keeps the official register and covers how a judgment can be removed early. In Scotland the equivalent is a decree, usually under simple procedure, and Citizens Advice Scotland walks through what happens there.
If repayments are getting tight, it is usually better to act before anything is missed. Restructuring or refinancing the practice’s borrowing onto a longer term can lower the monthly cost and keep a guarantee from ever being called.
Sole practitioners, partnerships and LLPs
If you are a sole practitioner, or a partner in a traditional partnership rather than an LLP, there is no separate borrower to guarantee: the practice’s borrowing is your own, and it is usually recorded on your personal file from the start. On-time repayments can then help your file, and missed ones count against it. Some smaller borrowing by sole traders and partnerships is also regulated consumer credit; our guide to consumer credit and practice finance explains when.
LLP members are in the same position as company directors: the LLP borrows and members are usually asked to guarantee. Money a partner borrows personally to fund a capital contribution is different again, as it is a personal loan in your own name; see our guide to partner capital loans and the partner buy-in finance page.
What is personal guarantee insurance?
Personal guarantee insurance protects principals who have guaranteed practice borrowing. If the practice can’t repay and the lender makes a formal demand under the guarantee, the policy pays an agreed share of what you personally owe, up to its limit. The rest remains your responsibility.
- Cover is partial. Policies rarely cover the whole guarantee, and cover often starts at a lower share and rises the longer the policy has been in force.
- There is usually a waiting period before a claim can be made, so the cover is worth arranging when the loan is taken out, not when the practice is already under pressure.
- The price varies. Premiums depend on the amount guaranteed, the level of cover, the practice’s finances and sector, and the insurer’s view of the risk.
- Each guarantor can usually be insured where several principals have signed.
Specialist insurers provide the cover. We arrange finance as a broker and don’t give insurance advice, but we will always tell you what guarantee a lender wants, so you can weigh up cover before you sign. Read the policy wording for the exact cover level, waiting period and exclusions.
What should you check before you sign?
- Read the guarantee itself, not just the loan offer. Check whether it is capped, whether it is joint and several, and whether it covers only this loan or all the practice’s borrowing with that lender (an “all monies” guarantee).
- Ask whether it can be limited. On stronger cases, some lenders will cap a guarantee at a share of the loan or take security over an asset instead.
- Take independent legal advice if you are unsure. Many lenders recommend it, and some require it.
- Ask how the lender checks your credit, soft or hard search, and whether it reports the loan on your file.
- Check how you can be released if you later leave or sell the practice. A guarantee usually stays in place until the lender agrees to release you, which matters on a {A(’/partner-buy-out-finance/’,’partner retirement or buy-out’)}.
On bigger deals the guarantee is often the point most worth negotiating, which is why it features in buying a professional practice and partner retirement and succession funding.
How we help
As a whole-of-market broker, we search the market and approach suitable lenders on your behalf. We explain what each one will ask principals to sign, push for a capped or reduced guarantee where the case supports it, and avoid scattering credit searches across lenders who are unlikely to say yes. You can see how it works, read our recent success stories, or get your instant quotes to see which lenders fit your practice, with no credit check.
Common questions
Does a personal guarantee show on my credit report?
Not normally, while the practice keeps up its repayments. The guarantee isn’t a credit account in your name. The lender’s credit search on you at application can show, and a few lenders also report the practice’s loan against guarantors, so ask before you sign.
Will signing a personal guarantee stop me getting a mortgage?
Not while the loan is being repaid normally. It doesn’t appear on a mortgage lender’s credit search and isn’t a monthly outgoing in their affordability sums. If the application form asks about guarantees you have given, answer it accurately.
Can I move house or remortgage if I’ve signed a personal guarantee?
Yes. A guarantee doesn’t stop you selling, buying or remortgaging a home. It could only become an issue if the practice defaulted and you didn’t meet the lender’s demand, as a judgment against you could then lead to a charge over property you own.
Does a personal guarantee count as debt?
No. It is a contingent liability: you only owe anything if the practice fails to pay and the lender calls on the guarantee. Until then it isn’t treated as borrowing in your name.
Is personal guarantee insurance worth it?
It depends on the size of the guarantee and how much of your own money you want protected. Cover is partial and usually has a waiting period, so it is worth looking at when the loan is arranged rather than later. Specialist insurers provide it; read the policy wording before you buy.
Does my spouse or partner need to sign too?
Usually only the directors, members or partners guarantee. If a lender asks someone outside the practice to guarantee, such as a spouse, that person should take independent legal advice before signing.
Can I get practice finance without a personal guarantee?
Sometimes. Larger, well-established practices and loans secured on property or equipment may need a smaller guarantee or none. For most unsecured practice loans, lenders ask the principals to guarantee. We can tell you which lenders’ terms fit your practice.
Official sources
This guide is for general information only and should not be treated as legal, tax, accounting or financial advice. Funding availability and lender requirements depend on individual circumstances.
