A personal guarantee called in means a lender has formally demanded that you, as an individual, repay a business debt the company cannot or has not settled. It usually arrives as a written demand letter setting a strict deadline for payment, and it makes you personally liable even though the original loan was in the company's name.
This moment is stressful, but it is not the end of your options. Lenders follow a set process, guarantees can sometimes be challenged, and there are usually several routes forward before any money changes hands. This guide walks through what typically happens, what to check first, and how directors usually respond.
Personal guarantee called in: what triggers it
A lender calls in a personal guarantee when the underlying borrower — usually the company — has defaulted on its obligations and the lender believes recovery from the business itself is unlikely or too slow. Common triggers include:
- Missed loan repayments or breach of a lending covenant
- The company entering, or being close to, formal insolvency
- A winding-up petition being presented against the company
- The lender losing confidence in the company's ability to trade out of difficulty
Guarantees are usually enforced once the lender has exhausted, or decided not to pursue, recovery against the company first. Some guarantees allow the lender to demand payment from the guarantor at the same time as chasing the company — the exact trigger point depends on the wording of the original agreement.
The formal demand: what it says and the deadline
The demand letter should set out the amount claimed, how it has been calculated (principal, interest and any fees), and a deadline for payment — commonly between 7 and 21 days, though this varies by lender and by the terms of the guarantee itself. It will usually reference the original loan agreement and the guarantee document you signed.
Read the letter carefully rather than reacting immediately. Note:
- The exact sum demanded and how it was calculated
- The payment deadline stated
- What the lender says will happen if you do not pay by that date
- Whether the letter comes from the lender directly or from solicitors instructed on its behalf
Missing the deadline does not automatically mean immediate enforcement action, but it does open the door to further legal steps, covered below.
Check the guarantee is valid and enforceable
Before assuming the demand must be paid in full, it is worth checking whether the guarantee itself is sound. Points worth reviewing include:
- Whether the guarantee was properly signed and witnessed, and by the right person
- Whether it covers the specific debt being claimed, or a different or expired facility
- Whether the amount demanded matches the guarantee's stated limit, if one was agreed
- Whether the guarantee has lapsed, been varied, or was linked to a loan that has since been refinanced without your knowledge
If you are unsure what you actually signed up to, our guide to personal guarantees explained for directors sets out how these agreements are typically structured and what they usually cover. Errors or gaps in the paperwork do not always defeat a claim, but they are worth identifying early with a solicitor's help.
Your options: pay, negotiate or dispute
Once a personal guarantee is called in, directors generally have three broad paths, and they are not mutually exclusive:
- Pay in full — if funds are available and the guarantee is clearly valid, settling promptly can limit interest and legal costs.
- Negotiate — many lenders will consider a repayment plan, a reduced settlement, or a short extension, particularly if you engage early and provide honest financial information.
- Dispute — if the guarantee's validity, the amount claimed, or the process followed is genuinely in question, a solicitor can advise on formally challenging the demand.
Ignoring the letter is rarely a workable strategy. A personal guarantee called in and then left unanswered tends to be escalated by lenders and their solicitors fairly quickly. If paying in full is not realistic, our article on what to do if you can't pay a personal guarantee looks at the practical choices available when the full sum is not affordable.
What the lender can do if you don't respond
If a demand is ignored past its deadline, the lender's next steps typically depend on the sums involved and its internal process, but may include:
- Issuing a statutory demand against you personally
- Applying for a county court judgment for the debt
- Petitioning for your personal bankruptcy if the debt remains unpaid following a statutory demand
- Instructing enforcement agents once a judgment is obtained
None of this happens instantly, and each step gives you a further opportunity to respond, negotiate, or take advice. Acting early — even just to acknowledge the demand and ask questions — tends to keep more options open than staying silent.
How this interacts with company insolvency
Personal guarantee demands often land at the same time as the company itself is struggling or already in a formal insolvency process. The guarantee is a separate, personal obligation under contract law, so it is not automatically written off if the company enters liquidation or administration under the Insolvency Act 1986.
If the company is placed into liquidation, an insolvency practitioner will deal with the company's assets and creditors, and any formal appointment will be advertised in The Gazette's insolvency notices. Your personal guarantee liability continues alongside that process, regardless of what happens to the company. For a wider view of when personal exposure arises, see our guide on whether you are personally liable for company debts.
When to get specialist help fast
It is worth speaking to a regulated specialist as soon as a demand arrives, rather than waiting until the deadline is close. Specialist input is particularly valuable if:
- The sum demanded is large relative to your personal assets
- You are unsure whether the guarantee is valid or correctly calculated
- The company is also facing insolvency, creating overlapping pressures
- You want to explore a negotiated settlement rather than pay in full
A solicitor can review the guarantee and demand for enforceability, while an insolvency practitioner can advise on how your personal position sits alongside the company's. Getting both perspectives early usually leads to calmer, better-informed decisions.
Frequently asked questions
How long do I have to respond to a personal guarantee demand?
The letter itself will state a deadline, commonly between 7 and 21 days, though this varies by lender and by the guarantee's own terms. Check the specific date given rather than assuming a standard period applies.
Can I challenge a personal guarantee that has been called in?
Yes, in some circumstances. Grounds can include incorrect signing or witnessing, the guarantee not covering the debt claimed, or errors in the amount demanded. A solicitor can assess whether a genuine challenge exists.
What if I can't pay a personal guarantee in full?
Many lenders will discuss a repayment plan or reduced settlement, particularly if you engage promptly and openly. Ignoring the demand tends to narrow your options rather than protect you.
Does the company entering insolvency cancel my personal guarantee?
No. A personal guarantee is a separate contractual obligation, so it generally survives company liquidation or administration under the Insolvency Act 1986.
Will paying the guarantee stop further action against me?
Paying the agreed sum in full typically resolves that specific claim, but always get written confirmation from the lender that the guarantee is discharged once payment is made.
This article is general information, not legal, financial or insolvency advice. Every guarantee and every lender's process is different, so directors should speak to a regulated specialist about their own circumstances before deciding how to respond.
If you would like to talk it through, Harbourfirst can introduce you to a regulated insolvency practitioner or solicitor who can review your guarantee and your options — start an enquiry.