Government-Backed Business Loan, Personal Guarantee: Are You Still Liable?

A government guarantee sits behind many UK business loans, but it protects the lender, not the director who signed. This guide explains what “government-backed” does and does not cover, how the main schemes differ on personal guarantees, and where a guarantee can be tested before or after a demand arrives.

Government-backed lending has become a routine route to finance for smaller UK businesses. On 12 July 2026 the Chancellor announced further capacity for the Growth Guarantee Scheme (GGS), including terms of up to ten years and a higher turnover limit, with lenders working to put the changes into practice. More directors will therefore be offered scheme-backed facilities, and many will be asked to sign a personal guarantee alongside them.

The phrase “government-backed” tends to be heard as “safe”. It should not be. What follows is where the protection stops.

What “government-backed” actually means

The guarantee under the GGS runs to the lender. It covers 70% of the outstanding balance after the lender has completed its normal recovery process, and the scheme is explicit that the borrower always remains 100% liable for the debt.

In practice that means a lender will usually pursue its own remedies first, including any personal guarantee it holds, before turning to the government. The scheme does not replace your guarantee. It sits alongside it and reduces the lender’s risk, not yours.

The schemes are not the same

Directors who took lending during or after the pandemic may be working from half-remembered rules. The position differed from scheme to scheme:

Two cautions apply. First, the caps and exclusions depended on the terms of the individual facility, so the agreement you actually signed matters more than a general description of the scheme. Second, the rule about a principal private residence limits the security a lender can take at the outset. How far that protection reaches once a guarantee is being enforced is a question for the documents and scheme rules, and it should not be assumed. A guarantee that is enforced through the courts can still expose wider personal assets, for example through a charging order.

Where the real exposure sits

Whatever the scheme, the exposure usually comes from the wording of the guarantee itself. Five points are worth checking:

• Cap and duration. Is the guarantee limited to a sum or a period, or is it unlimited and ongoing?
• Joint and several liability. Where more than one director signs, a lender can ordinarily pursue any one of them for the full amount, not an equal share.
• “All monies” wording. A guarantee drafted this way can capture borrowing beyond the loan you had in mind. For Bounce Back Loans, the sector’s own guidance made clear that a lender could not rely on an existing all-monies guarantee for that loan. For other lending, the wording decides.
• Interest and costs. Many guarantees extend to interest and to the lender’s enforcement costs, so the figure demanded can be well above the original balance.
• Indulgence clauses. At common law, a material change to the underlying loan without the guarantor’s consent can release the guarantor (Holme v Brunskill (1878) 3 QBD 495). Modern guarantees almost always contain clauses that allow the lender to vary, extend or waive without releasing you.

Repaying the lender that holds your guarantee

Directors in difficulty are often tempted to pay down the facility their guarantee supports first, which relieves their own exposure. That can create a separate problem. If the company later goes into liquidation or administration, a payment that puts a guarantor in a better position can be challenged as a preference under section 239 of the Insolvency Act 1986. Where the person benefiting is connected with the company, as a director is, the relevant period extends to two years before the onset of insolvency under section 240, and a desire to prefer is presumed in the connected person’s case. We look at the wider range of liquidator claims in our guide to defending claims brought by liquidators.

When a guarantee can be tested

Courts generally enforce clear written guarantees, and many survive scrutiny. But a guarantee is a contract, and the usual questions can be asked of it:

• Formalities. A guarantee must be in writing and signed by the guarantor or someone authorised to sign for them (section 4, Statute of Frauds 1677).
• Undue influence. Where a guarantor backs the borrowing of a spouse, partner or relative, the principles in Royal Bank of Scotland v Etridge (No 2) [2001] UKHL 44 may apply, particularly where the lender was on notice and did not ensure the guarantor received proper advice.
• What you were told. Misrepresentation about the facility, or about what the guarantee covered, can affect enforceability.
• Scheme rules. A guarantee taken where the scheme did not allow one is an obvious line of enquiry. A lender asking a director to pay under a Bounce Back Loan guarantee, for example, warrants close scrutiny.
• Assignment. Loans are often sold on to debt buyers. Whether guarantees can be enforced by an assignee has been the subject of High Court proceedings, which we discuss in Are Funding Circle’s Personal Guarantees Enforceable?.
• Time limits. Under the Limitation Act 1980, a claim on a guarantee given as a simple contract must generally be brought within six years, and within twelve years if the guarantee was executed as a deed. When the clock starts depends on the wording of the guarantee, including whether a demand is a condition of liability.

Our wider guide to what happens when a corporate debtor defaults sets out how lenders enforce once the guarantee is valid.

If a demand arrives

Do not ignore it, and do not assume the scheme protects you. A written demand is often the first step towards proceedings, and in some cases a statutory demand follows. A statutory demand gives 21 days to pay or otherwise deal with it, but an application to set it aside is normally needed within 18 days of service, so the working window is shorter than it looks. If the debt exceeds the £5,000 bankruptcy level and the demand is not dealt with, the lender can present a bankruptcy petition.

Gather the guarantee, the facility letter or loan agreement, any independent legal advice certificate, default notices and all correspondence. The strongest position in any negotiation with a lender is one built on what the documents actually say.

Before you sign

If you are being asked to give or renew a guarantee, questions worth putting to the lender include whether the guarantee can be capped in amount, whether it falls away on repayment of the specific facility or after a fixed period, whether it can be limited to this loan rather than all monies, whether liability can be several rather than joint, and whether it is secured on your home. Not every lender will move, but some will, and it is far easier to ask before signing than after default. Read the guarantee itself, not only the summary the lender gives you.