Getting a bridging loan often means facing a request for a personal guarantee.
While many property owners hesitate when asked to provide this extra security, understanding what’s involved helps you make confident decisions about your finance options.
Here’s a clear look at what personal guarantees mean, how they work, and what to consider before signing.
Why Lenders Ask for Personal Guarantees
A personal guarantee (PG) creates a legal promise to repay a bridging loan if your property project can’t meet the repayments when due.
Your target property serves as the main security, but lenders often seek this additional protection, particularly for larger loans or complex developments.
Providing a personal guarantee doesn’t automatically put your home at risk.
Most guarantees don’t specify which assets would cover any shortfall. Instead, they create a legal commitment that you’ll find a way to repay if needed.
Getting to Grips with Guarantee Requirements
Personal guarantees come up most often with time-sensitive purchases.
Whether you’re buying at auction, preventing a property chain break, or funding a refurbishment, lenders assess several factors to determine the guarantee amount needed.
Your property’s location and condition play key roles, alongside your track record with similar projects.
A solid exit strategy, or low LTV, can sometimes reduce the required guarantee amount.
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The Mechanics of Personal Guarantees
Personal guarantees adapt to different lending situations.
Limited guarantees cap your liability at a set amount, while unlimited versions cover the full loan balance plus costs.
For company directors, joint guarantees share repayment responsibility among the leadership team.
UK law requires written guarantees with clear terms.
You’ll need independent legal advice before signing, ensuring you fully grasp your commitments. This safeguard prevents misunderstandings and protects both parties.
Your guarantee stays active throughout the bridging loan term. Some agreements extend liability beyond repayment, making a clear exit timeline essential. Early repayment helps discharge your guarantee sooner.
Making Smart Decisions About Guarantees
Evaluate how a personal guarantee fits your broader financial picture.
Beyond loan payments, consider your capacity to repay through alternative means if needed. Your experience level influences lender requirements – newcomers are likely to face higher guarantee percentages than seasoned developers.
Safeguarding Your Interests
Optional personal guarantee insurance offers valuable protection, covering part of your liability if called upon.
While this increases costs, it provides peace of mind and financial security. Keep detailed records of lender communications and maintain regular project updates to spot potential issues early.
Your exit strategy remains important.
Whether selling or refinancing, build in realistic timelines and contingency plans. Property markets shift – flexibility in your approach helps navigate changes while protecting your interests.
Read more: Bridging loan exit strategies explained
Understanding Personal Guarantee Insurance
Personal guarantee insurance helps shield your assets if a bridging loan guarantee gets called in.
Most policies cover between 60% and 80% of your liability, leaving you responsible for a smaller portion of any shortfall.
Getting this insurance makes sense in several situations.
Perhaps you’re confident about your exit strategy but want extra protection against market changes. Or maybe you’re taking on a larger project and need to safeguard your personal wealth.
The cover kicks in if your business can’t repay the bridging loan and the lender calls on your guarantee.
The cost varies based on your circumstances.
Insurers look at your experience, the loan amount, and your business track record. A property developer in Birmingham recently paid £3,000 for a policy covering 70% of his £200,000 guarantee. When his project faced unexpected delays, this insurance proved invaluable in protecting his personal assets.
But insurance isn’t always the answer.
The premiums add to your project costs, and policies come with strict conditions. You’ll need to disclose all relevant information about your business and the bridging loan. Most insurers also require regular updates about your project’s progress.
Pay attention to policy exclusions. Most won’t cover you if you’ve provided false information to the lender or breached loan terms. Some policies also exclude certain types of property developments or have strict criteria about exit strategies.
If you’re considering this insurance, read the small print carefully. Look for clauses about claim conditions and payout timelines. Understanding exactly what’s covered helps you decide if the premium represents good value for your situation.
Should You Get Legal Advice About Your Personal Guarantee?
Speaking with a solicitor before signing a personal guarantee for your bridging loan isn’t just recommended – most UK lenders require it.
This goes beyond simple box-ticking. Your solicitor serves as an independent adviser who’ll explain exactly what you’re committing to and help protect your interests.
A property developer from London recently shared how his solicitor spotted that his guarantee agreement lacked a clear upper limit. This small detail could have left him exposed to unlimited liability. A quick negotiation with the lender added a cap, giving him peace of mind about his maximum exposure.
Your solicitor will review several key areas.
They’ll check whether the guarantee terms are proportionate to the loan, explain how joint guarantees work if you’re signing with other directors, and highlight any unusual clauses that could affect you later. They’ll also ensure the guarantee aligns with your exit strategy and overall business structure.
Legal advice becomes even more valuable in complex situations.
Perhaps you’re using multiple guarantees across different projects, or your guarantee involves overseas assets. A solicitor can help structure these arrangements to protect your interests while satisfying lender requirements.
The cost of legal advice varies but usually ranges from £500 to £1,500 for straightforward guarantees. Many property investors also find their solicitor’s input helps them negotiate better terms or identify potential issues before they become problems.
Choose a solicitor with experience in property finance and personal guarantees.
They’ll understand market norms and can quickly spot any terms that seem unusual or potentially problematic. Ask about their experience with bridging finance specifically – this specialist knowledge proves invaluable when reviewing guarantee agreements.
Your solicitor should provide a certificate confirming they’ve explained the guarantee’s implications to you. Lenders need this before completing your bridging loan. It protects both you and the lender by proving you understood your commitments when signing.
Negotiating Your Personal Guarantee
Many property owners accept the first personal guarantee terms offered, not realising there’s often room for negotiation.
While lenders need security, they’re also keen to support viable projects that make commercial sense.
A London property investor recently reduced his guarantee from 100% to 75% by showing the lender his strong track record and offering additional security. His success came from understanding what lenders value most – certainty about getting their money back.
Your guarantee negotiations might cover the percentage required, release conditions, and liability caps.
Your broker can help identify which lenders tend to be more flexible.
They’ll understand current market conditions and what evidence strengthens your position. Be prepared to share detailed information about your project and wider portfolio – lenders appreciate transparency.
The best time to negotiate is before you’ve committed to a particular lender. A Leeds developer found this out when refinancing a shopping centre. By approaching negotiations with three potential lenders, he created competition for his business, securing better guarantee terms than initially offered.
Remember that negotiating isn’t about winning at all costs – it’s about finding terms that work for both parties. Back up your requests with solid evidence. This approach helps build trust with lenders, which can lead to better terms on future deals too.
Expert Support Makes the Difference
Bridging finance brokers bring important expertise to guarantee negotiations.
They understand lender requirements and often secure better terms based on your circumstances. Some lenders work exclusively through brokers, expanding your options.
Brokers assess your exit strategy before approaching lenders, ensuring you only take on manageable guarantees. Their preparation helps structure applications effectively, potentially reducing guarantee amounts and improving terms.
Moving Forward with Confidence
Personal guarantees needn’t block your property plans.
Understanding their role helps you make informed decisions about using bridging finance. Every project brings unique challenges – what suits one investor might not work for another.
Take time to understand your position and explore available protections. Working with experienced professionals ensures you navigate the process smoothly and secure terms that match your needs.
Ready to explore your options? Speaking with a specialist broker helps clarify which lenders offer terms aligned with your goals.
Need some help?
If you need a short-term bridging loan then a specialist broker is a good place to start. You will get expert help and advice along with a wide range of lenders to choose from.
To get matched with a specialist broker, please call us on 0330 030 5050.
