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A personal guarantee isn't always required for a bad credit business loan, but many specialist lenders will ask for one. This is because lending to a business with a low credit score carries more risk, and a personal guarantee gives the lender a way to recover their money from you personally if the business can't repay. Whether you'll be asked for one depends on the type of loan, how much security your business can offer, and your trading history.
This guide explains why lenders ask for personal guarantees when your credit score is poor, which loan types are more or less likely to need one, and what you can do to reduce your personal risk before you sign anything.
Why do lenders ask for a personal guarantee on a bad credit loan?
Lenders use a personal guarantee to offset risk. When your business has a low credit score, missed payments, or a CCJ on file, a lender has less confidence that the business alone can be relied on to repay. A personal guarantee gives them a fallback: if the business defaults, they can pursue you personally for the outstanding amount.
It's especially common when:
From a lender's point of view, agreeing to a personal guarantee shows you're confident your business can repay the loan. In return, it can open up funding, or better terms, that might not be available otherwise.
Which bad credit business loans need a personal guarantee?
Not every type of finance treats personal guarantees the same way. Here's how the main options compare.
Loan type | How it's assessed | How likely is a personal guarantee |
|---|---|---|
Unsecured business loan | Based on your business's overall financial health | Very likely, since there's no asset to fall back on if your credit is poor |
Backed by property, equipment or other assets | Less likely, though a personal guarantee may still be asked for if the asset doesn't fully cover the loan | |
Repaid as a percentage of your daily card sales | Often required, though this varies by provider | |
Advances cash against your unpaid invoices | Only required sometimes, since your invoices already act as security | |
Secured against the equipment or vehicle being financed | Less common, as the asset itself is the security |
If avoiding a personal guarantee altogether is the priority, it's worth comparing no personal guarantee business loans, though with bad credit, eligibility for these tends to be stricter.
What does signing a personal guarantee mean if you have bad credit?
Signing a personal guarantee means you agree to repay the loan from your own money if the business can't. With bad credit already on your file, this is worth thinking through carefully, since the consequences of a further default can add up. In practice, this means:
It's a legal document, so read it carefully before you sign. A good funding specialist will also walk you through exactly what you're agreeing to, rather than leaving you to work it out from the small print.
Can I get a bad credit business loan without a personal guarantee?
Yes, it's possible, though your options are more limited than if you had a strong credit history. Lenders weigh up several things when deciding whether they can offer terms without a personal guarantee.
Factor | How it affects your chances |
|---|---|
Trading history | Two years or more of trading makes a no personal guarantee loan easier to get, even with poor credit |
Monthly revenue | Strong, consistent revenue can offset the lack of a personal guarantee |
Business assets | Assets you can offer as security reduce the need for a personal guarantee |
Unresolved CCJs | An active, unpaid CCJ makes a personal guarantee more likely to be requested |
Loan amount | A loan that's small relative to your turnover is easier to get without a personal guarantee |
Secured loans, invoice finance and asset finance are generally your best starting point if you want to avoid signing a personal guarantee while your credit score is low, since the lender already has an asset or invoice book to fall back on.
How to reduce your risk if you're asked for a personal guarantee
If a lender does ask you to sign a personal guarantee, there are still ways to limit your exposure.
How Capitalise helps with bad credit business loans with no personal guarantee
Capitalise matches your business with lenders from our panel of 130+, including specialists who work with businesses that have a low credit score, CCJs or a limited trading history. Instead of approaching lenders one by one and signing whatever terms are offered, you complete a single application and a dedicated funding specialist explains your options, including exactly what any personal guarantee would mean for you, before you commit to anything. You can also check your business credit score before you apply, so you know exactly what your credit profile looks like to lenders.
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