Personal guarantee bridging loan: what you are signing up to

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What happens when you personally guarantee a loan?

When you give a personal guarantee, you agree that if the borrower defaults, the lender can ask you to pay what is owed. On a commercial bridge, the borrower is usually your company and the debt is secured on property, so in most cases the lender first looks to the property. The guarantee matters when the sale or refinance of that property does not clear the full debt.

• The lender can make a formal demand on you for the amount covered by the guarantee.
• Many guarantees let the lender demand payment from you without first enforcing against the company or selling the property. Check the wording.
• If you do not pay, the lender can take court action, which may lead to a judgment, a charging order over property you own, or bankruptcy proceedings.

In short, the limited liability you normally enjoy as a company director no longer protects you up to the amount you have guaranteed.

Why do bridging lenders ask for personal guarantees?

Most commercial bridging is lent to companies, and many of those companies are SPVs whose only asset is the property being financed. If that property is worth less than the debt when it comes to be sold, the lender has nowhere else to go. A guarantee gives it a second source of repayment and, just as importantly, shows that the people behind the company are committed to the deal.

Lenders are more likely to insist on a guarantee, or on an unlimited one, where:

• the borrower is a new SPV with no trading history;
• the loan to value is towards the top of the lender's range;
• the property is specialist, vacant or harder to sell;
• the exit depends on works, planning or a letting that has not happened yet.

Our guide to bridging loans for limited companies explains the wider set of checks lenders make on company borrowers.

Limited vs unlimited guarantees: what is the difference?

Type	What it covers	What it means for you
Unlimited guarantee	The whole debt, including interest, default interest, fees and enforcement costs	Your exposure is not capped and grows if the loan runs late
Limited guarantee	A fixed sum or a percentage of the loan	Your maximum exposure is known at the outset
Joint and several guarantee	Given by two or more people together	The lender can pursue any one guarantor for the full guaranteed amount
Corporate guarantee	Given by a parent or sister company	Puts that company's assets at risk rather than an individual's

Watch for joint and several wording. If you and a business partner both guarantee, the lender does not have to split the claim fairly between you; it can recover everything from whichever guarantor has the assets.

What could a guarantee claim look like? An illustrative example

The figures below are illustrative only, using round numbers.

For example, an SPV borrows £600,000 on a retail parade. The exit, a refinance, falls through and the loan runs past its term. By the time the lender has appointed a receiver and sold the property, the debt including interest, default interest, fees and sale costs has reached £700,000. The property sells for £620,000 net of selling costs.

• Debt at sale: £700,000.
• Net sale proceeds: £620,000.
• Shortfall: £80,000.

With an unlimited guarantee, the lender can claim the full £80,000 from the guarantors. With a guarantee limited to, say, £50,000, the claim stops at £50,000. The example shows why the size of a guarantee matters most when things go wrong, and why delays add cost quickly. Our guide to bridging loan extensions and defaults covers that stage in detail.

Why is independent legal advice so important?

Many bridging lenders require each guarantor to take independent legal advice and for their solicitor to sign a certificate confirming that the guarantee has been explained. Even where it is not required, it is strongly recommended. Your solicitor can explain:

• exactly what the guarantee covers and when it can be called;
• whether the lender must enforce against the property first;
• how long the guarantee lasts, and whether it continues after an extension;
• what happens if the loan terms are varied without your agreement.

If a spouse, partner or relative who is not involved in the business is asked to guarantee, separate independent advice is essential, and lenders will usually insist on it. Speak to your accountant too, so you understand how a potential liability fits alongside your other personal commitments. Our page on bridging loan solicitors explains how the legal side runs.

Can you negotiate the terms of a personal guarantee?

Sometimes. A guarantee is part of the lender's risk assessment, so anything that lowers risk can improve the terms. Options worth raising include:

• A cap, either a fixed sum or a percentage of the loan.
• A lower LTV, by putting in more equity or offering additional property as security.
• Release on milestones, such as practical completion of works or a letting.
• Excluding certain assets, although lenders rarely agree to this.
• Asking for the guarantee to fall away once the loan is repaid in full, with written confirmation.

We compare how lenders across our panel approach guarantees, because appetite differs. Some lenders are more flexible on limited guarantees for low LTV, well-let commercial property with a strong exit.

What if your home is offered as security?

A personal guarantee on its own is not a charge over your home, although if it is called and not paid, the lender could later seek a charging order. A different situation arises if the lender asks for a legal charge over your home as additional security for the bridge.

Where the security includes a home that you or a close family member live in, the loan may be a regulated mortgage contract. We are not directly authorised by the Financial Conduct Authority, so we introduce those cases to a firm that is. See regulated vs unregulated bridging for how the test works.

Questions to ask before you sign

1. Is the guarantee limited or unlimited, and what exactly is included in the guaranteed amount?
2. Is it joint and several with other guarantors?
3. Can the lender demand payment from me before selling the property?
4. Does it continue if the loan is extended or the terms change?
5. What happens to the guarantee once the loan is repaid?
6. How realistic is the exit strategy, and what is my plan if it slips?

Your main protection against a guarantee being called is a bridge that is sized sensibly and an exit with a margin for delay.

Unregulated commercial and investment bridging is arranged directly. Any case where the security includes a home you or an immediate family member occupies, including a flat above commercial premises, may be regulated and is introduced to a firm directly authorised by the Financial Conduct Authority. We are not directly authorised by the Financial Conduct Authority ourselves. Your property may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.