Quick answer — summary

For engineering businesses, a PG is not automatic but it is common in certain situations. Lenders tend to avoid PGs when they can take clear, enforceable security over high-value machinery or property. However, if your company is new, has limited trading history, weak balance sheet or you want an unsecured facility, expect some lenders to ask directors for a guarantee.

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What is a personal guarantee?

A personal guarantee (PG) is a director’s or owner’s legally binding promise to repay a business debt if the company cannot. In the UK context the most common forms are:

• Limited (capped) guarantee — the director’s liability is limited to a fixed sum.
• Unlimited guarantee — the director is potentially liable for all outstanding debt.
• Joint & several guarantee — any guarantor can be pursued for the whole debt, not just their share.

PGs are different to asset security (fixed or floating charges). While a lender may seize charged assets, a PG gives them a route to pursue a director’s personal assets (subject to legal process).

Not legal advice — have a solicitor review any guarantee before signing.

Why lenders ask for personal guarantees

Lenders are managing risk. A PG gives them extra recourse where:

• The company has limited trading history or thin assets.
• Credit files are weak or there are historic defaults.
• The loan is unsecured or high relative to company equity.
• Cashflow is project-driven (common in engineering contracts with long payment cycles).

In engineering, projects can involve expensive machines, staged payments and retention clauses. Some lenders rely on equipment value; others want a PG where resale or repossession could be complicated or when the borrower is a small contractor.

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Engineering loans: which types commonly ask for PGs?

Different finance products carry different security expectations. Typical scenarios for engineering firms:

• Asset finance / equipment finance: Often secured primarily by the machine. Established firms with good accounts may avoid a PG, but smaller or newer businesses may be asked for one.
• Hire purchase & finance leases: Provider usually keeps title to the equipment — PGs are less likely but possible for higher-risk cases.
• Operating leases: Title remains with lessor, so PGs are less common; deposits or company guarantees may be required instead.
• Unsecured business loans / cashflow loans: More likely to require PGs, especially where no business security exists.
• Invoice finance / factoring: Lenders may ask for director guarantees when advance rates are high or customer concentrations risk default.
• Commercial property or mortgage-style finance: Lenders prefer property charges but may still request director guarantees as part of the security package.
• Contract / performance finance: Where future contract payments are advanced, PGs or other indemnities are commonly requested.

Which lenders are more likely to ask for a PG?

Broadly:

• High-street banks: For established, creditworthy engineering companies they often rely on company security rather than PGs. But for smaller firms they may still ask for director guarantees.
• Specialist and alternative lenders: More flexible on structure but more likely to ask for PGs where risk is higher.
• Asset finance companies: Often rely on the asset as primary security. For low-value assets, or if the borrower has poor credit, expect a PG.
• Brokers: A good broker can shop multiple lenders and find options with reduced or no PGs for your situation.

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How personal guarantees are usually structured & common terms to watch

Guarantees vary greatly. Common structures and clauses to understand:

• Cap (limited guarantee): A fixed monetary cap protects the director’s downside.
• Sunset clause / release: Automatic release after a set period or after repaying a percentage of debt.
• Material adverse change (MAC): Broad wording that can keep a guarantee alive if the business changes — get clarity on its scope.
• Continuing guarantee: Covers future borrowings unless expressly limited.
• Cross-guarantees: May link multiple companies and directors — watch joint & several wording.

Practical tips: ask for a cap, a sunset or linkage to performance milestones; exclude personal residence where possible; and always have a solicitor review the wording before signing.

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Alternatives to giving a personal guarantee

If you want to reduce or avoid personal exposure, consider:

• Offering company assets as collateral (fixed/floating charge) — machinery, vehicles or property.
• Higher deposit / lower loan-to-value to reduce lender risk.
• Seeking asset-only finance where the lender’s recourse is primarily to the asset.
• PG insurance or guarantee indemnity products (sometimes available through brokers).
• Finding lenders that specialise in engineering/manufacturing and understand asset resale values.

Brokers can often identify lenders prepared to accept alternative security or more bespoke terms.

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How to negotiate, limit or exit a personal guarantee

Common negotiation points that reduce personal risk:

• Agree a capped liability rather than unlimited exposure.
• Insert a sunset clause or release on refinancing / repayment milestones (e.g., release after 12–36 months provided covenants met).
• Exclude certain liabilities (e.g., exclude claims from closed periods or personal residence).
• Ask for a deed of release when the company meets specified conditions.
• Consider indemnity insurance and ensure lenders accept it.

Always instruct a solicitor to negotiate and redraft guarantee wording — vague clauses can create unexpected liabilities.

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Practical next steps when applying

What lenders will typically ask for when assessing an engineering firm:

• Company accounts (last 2–3 years) or management accounts for newer businesses.
• Cashflow forecasts, order book or contract pipeline and customer payment terms.
• Details of assets to be financed (make, model, age, estimated resale value).
• Director information – identification, background and possibly credit checks (these are usually only performed if you proceed).

UK Business Loans does not provide loans — we match businesses to lenders and brokers. Submitting an enquiry is quick, free and does not affect your credit score. Matches and quotes are no obligation.

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Two short case studies

Case A — Established engineering firm

A Midlands precision engineering company with strong accounts sought new CNC kit. The asset’s resale value was high and the lender accepted the machine as primary security — no director PG was required. The firm secured a competitive hire-purchase facility and kept personal exposure minimal.

Case B — Small subcontractor

A small contractor with limited trading history needed bridging cash for a single large contract. A specialist lender offered funds but required a limited PG capped at £50,000 with a sunset clause tied to contract completion and final payments. The broker negotiated the cap and release terms, reducing long-term personal risk.

FAQs

Will a PG affect my personal credit?

A PG is a contingent liability and may not appear on your credit file immediately. If the lender calls on it, that liability can affect your credit. Submitting a UK Business Loans enquiry won’t affect your credit score; lenders may perform checks only if you proceed.

Can I refuse to give a PG?

Yes — you can refuse. The lender may decline the facility or offer different (often more expensive) terms. A broker can identify lenders willing to accept alternative security.

Can a PG be removed later?

Often yes. Typical routes include release clauses, refinancing with another lender, or meeting agreed performance metrics that trigger a release. Negotiate these options up front.

Are directors personally liable if the company fails?

If you’ve signed a PG, you may be personally liable for the guaranteed debt. Insolvency rules and other director responsibilities also apply separately from any PG.

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Summary & next step

Personal guarantees are not universal for engineering loans. Where lenders can rely on clear, high-value asset security they are less likely to insist on a PG. For start-ups, unsecured facilities, or weaker credit profiles PGs are more common. You can often negotiate caps, sunset clauses or alternatives — and brokers can help you find lenders that suit your circumstances.

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For further reading about finance options particularly tailored to engineering firms, see our industry overview on engineering business loans.

Legal & compliance

UK Business Loans is an introducer — not a lender and does not provide regulated financial advice. We match enquiries to approved UK brokers and lenders. This content is general information only and not financial, tax or legal advice. Always seek independent advice and read lender terms carefully. Submitting an enquiry via our form is not an application and won’t affect your credit score; lenders may perform checks only if you proceed.