Will a director be asked to give a personal guarantee for an invoice finance facility?
Personal guarantees are commonly requested by invoice finance providers, particularly for smaller businesses, early-stage companies, or where the directors have limited trading history. The guarantee is usually limited in scope to cover instances of fraud, misrepresentation, or breach of warranty rather than simply the commercial risk of customer non-payment. Directors should read any personal guarantee carefully and take independent legal advice before signing, as the terms and caps on liability can vary significantly between providers.
What this means for your business
In practice, expect the question to come up, and budget time for legal advice before completion. A guarantee of this kind does not usually make the director personally liable for a customer simply failing to pay: under a recourse facility that loss comes back to your company, and under a non-recourse facility or with credit insurance the funder or insurer carries it.
What the director is usually standing behind is the company's conduct, for example submitting an invoice for work not yet done or a ledger that turns out to be wrong. The exposure should therefore be narrower than a full personal guarantee on a bank loan. The exact wording, scope, and any cap on liability will differ between providers, so directors should never assume one lender's terms apply to another.
Key points
- The commercial risk of a customer not paying is carried by your company (recourse) or by the funder or insurer (non-recourse), not usually by the director personally.
- Ask whether the guarantee is capped at a fixed sum and whether it can be released once the business has a track record with the provider.
- Liability caps and the exact wording of the guarantee vary significantly between providers, so each agreement must be reviewed individually.
- Directors should take independent legal advice before signing, as the terms can have real personal financial consequences.
Common pitfalls
A common mistake is assuming all personal guarantees work the same way, when the scope and any liability cap can differ sharply between providers. Some directors sign without checking whether the guarantee is limited to fraud and misrepresentation or drafted more broadly, which can expose them to greater risk than expected.
Others skip independent legal advice to speed up funding, only to find unfavourable terms later. It is also worth checking whether the guarantee applies to one director or all directors jointly, and whether it survives if the director later leaves the business.
Related questions
Can a personal guarantee for invoice finance be negotiated?
Yes, the scope and cap on liability are often negotiable, particularly for businesses with a stronger trading history or when using a broker to compare providers. It is worth asking whether the guarantee can be limited further or whether a lower cap can be agreed before signing.
Does a personal guarantee mean a director is liable if a customer becomes insolvent?
Not usually. Provided there is no fraud or misrepresentation involved, customer insolvency is normally treated as a commercial risk borne by the invoice finance provider, not the director personally.
What happens to a personal guarantee if a director resigns from the company?
This depends entirely on the wording of the guarantee agreement, so it should be checked carefully before signing. Some guarantees remain in force for facilities drawn down before resignation, which is another reason to seek independent legal advice.
Founder & Managing Director, Muswell Rose, founder and PSC of Best Business Loans Ltd
Adam is the founder and managing director of Muswell Rose and a founder of Best Business Loans Ltd, the company behind Market Invoice. He spent over three years as managing director of Penny, a UK invoice finance business, and his career runs through insurance, mortgages, commercial finance and fintech lending. He writes the Market Invoice library.
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