Personal Guarantees on Business Loans: What You’re Agreeing To

Personal Guarantees on Business Loans: What You’re Agreeing To

Short answer: A personal guarantee is a promise by a person, usually a director or owner, to repay a business loan if the business can’t. Lenders often ask for one when a company borrows, particularly on unsecured loans, because there’s no asset to fall back on. It can expose your personal assets, so read what it covers and have a solicitor review it before you sign.

Last reviewed: November 2026

Somewhere in the paperwork for many unsecured business loans, there’s a page that isn’t about your business at all. It’s about you.

A made-up example: Sam runs a small catering company with her brother. They borrow to replace two commercial ovens. Nothing is pledged, so it feels low-risk. Then a big client takes months to pay and the company falls behind. The lender writes to the company, and to Sam as guarantor. What she can be asked to repay depends on the wording she signed, which is the part most people never read closely.

Who does this actually apply to?

It depends on how you trade.

• Sole traders and partners. You’re already personally liable for the business’s debts, according to business.gov.au. There’s no separate guarantee needed to put your assets in play.

• Companies. A company is a separate legal entity, and its directors are generally not personally liable for its debts. There are exceptions. One is signing a personal guarantee. Another is that, as the ATO notes, directors can be liable in some cases for certain tax and super debts.

So for a company, the guarantee is what puts the director back on the hook. That’s why lenders ask for it, and why it deserves a careful read. We cover the wider picture in our guide to unsecured business loans.

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What can a guarantee expose?

In principle, your personal assets, including property and savings, if the lender enforces it and the business can’t pay. How far it goes depends on the wording. In some documents it also depends on:

• Whether it’s capped at a set amount

• Whether it expires or has a release condition

• Whether it covers only this loan or other amounts the business owes the lender

• Whether other people are guaranteeing too

Some guarantee documents include an indemnity that goes further than a simple promise to repay. Ask what yours includes.

Guarantee, general security agreement or mortgage: what’s the difference?

A single loan can involve more than one of these.

What protections do you have?

Less than on a home loan. Business loans generally sit outside the National Credit Code, and AFCA says responsible lending provisions don’t apply to small business lending.

Unfair contract terms law, for some loans. ASIC explains that it covers a small business loan contract when the contract is standard form, meaning largely offered on a take-it-or-leave-it basis. The borrower must also be a small business, with fewer than 100 employees or annual turnover under $10 million, and the loan must be within a set size limit. A term found unfair is void. The amount borrowed, the interest rate and a disclosed establishment fee can’t be challenged as unfair, but late fees and other contingent fees can. Ask a solicitor whether the law applies to your loan and to the guarantee itself.

A gap many directors miss. Under the 2025 Banking Code of Practice, banks that subscribe must take reasonable steps to meet a prospective guarantor, without the borrower present, before accepting a guarantee. But that requirement doesn’t apply in several cases, including where the guarantor is a company director, or where the guarantor or their lawyer confirms they’ve had independent legal advice. A director signing a guarantee shouldn’t assume they’ll get that conversation. The Code applies to subscribing banks, so check whether your lender is one.

A way to complain. ASIC’s steps are to complain to the lender first, then to AFCA, which is free and independent for eligible small businesses.

Regulators are watching this area. ASIC’s 2026-27 priorities include non-bank lenders’ small business lending practices, including unfair contract terms. That doesn’t mean your contract is a problem. It does mean you shouldn’t assume it’s fine.

These protections don’t cancel a contract you signed and understood. They’re a backstop, not a plan.

What should you ask before you sign?

1. Is a guarantee required, and could the loan work without one? Ask early.

2. Does it cover only this loan, or any amount the business owes the lender?

3. Is it capped, and does it have an end date or release condition?

4. Who else is signing, and what is each person liable for?

5. Does the lender also take security over business assets, or limit other borrowing?

6. What happens if I’m late once?

Then have a solicitor read it. A broker can explain how lenders structure these loans, but we aren’t lawyers and can’t give legal advice. The ATO lists legal expenses incurred in borrowing money among deductible operating expenses, so ask your accountant how that applies to you.

Back to Sam. Hers wasn’t a bad loan. What caught her out was not knowing what she’d signed. Those six questions would have taken an afternoon.

Frequently asked questions

Can I get an unsecured business loan without a personal guarantee?
Sometimes. It depends on the lender, your structure, your trading history and your financial strength. Many unsecured facilities include one, so ask each lender before you apply.

Do sole traders need to sign a personal guarantee?
Usually not in the same way, because a sole trader is already personally liable for business debts. A lender may still ask for security over assets.

Does a guarantee end when the loan is repaid?
It depends on the wording. Ask whether it covers only this loan and what the release conditions are.

Can a lender ask someone other than a director to guarantee?
Lenders can ask for different guarantors in different cases. Anyone asked to guarantee should read the document and get their own independent legal review before signing.

Is a personal guarantee the same as a mortgage?
No. A guarantee is a person’s promise to repay. A mortgage is security over a specific property. A loan can involve either or both.

About to sign? Book a business finance strategy call and we’ll walk through how the loan is structured and what to raise with your solicitor. Complete the Finance Square free 2-minute quiz to get a clearer read on your own position, or book a 15-minute commercial and business finance strategy call.

Priya Dey is the founder of Finance Square Group, a Melbourne-based finance broking firm specialising in self-employed borrowers, investors and business owners.

This article is general information only. It does not take your objectives, financial situation or needs into account, and it is not a recommendation that any product or lender suits you. It is not credit, tax or legal advice. Laws and policies referenced are current as at November 2026 and can change. The example is illustrative and not a client.

Finance Square Group is a trading name of Sioux Property Solutions Group Pty Ltd, Credit Representative 543438, authorised under BLSSA Pty Ltd, Australian Credit Licence 391237.