Last updated: June 2026
Personal Guarantees When Buying a Business in Australia
What is a personal guarantee?
A personal guarantee sits alongside the loan made to the company or trust that owns the business. If the business defaults and the lender cannot recover from the business itself, the guarantee lets them pursue you personally. A company or trust normally separates your personal assets from the business. The guarantee is the mechanism that reaches back through that structure to the individual behind the deal.
What are the three types of personal guarantee?
They are not all the same, and the differences matter more than most buyers expect.
| Type | What it means |
|---|---|
| Unlimited | You are liable for the full debt, plus interest and recovery costs. |
| Limited | Your liability is capped at a set dollar amount or share. This matters most where several investors each want to cap their exposure to their own portion. It has to be negotiated and documented explicitly. |
| Joint and several | Each guarantor can be pursued for the whole debt, not only their share. The lender can recover the full amount from any one guarantor, who then has to chase the others. Common in partnership and multi-director deals, and the one that most often catches people off guard. |
What is actually at risk?
A guarantee gives the lender a path to your personal assets if the business fails and the debt is not repaid. In practice that can include property, savings, and other investments. Two points are worth holding onto.
First, a guarantee can stay binding for years after you leave or sell the business, unless it is formally released in writing. Resigning as a director or selling your shares does not automatically end it. Second, a default under the guarantee affects your personal credit and your future borrowing capacity, in the same way a personal default would.
Will the bank take my house?
This is the fear underneath almost every guarantee conversation, so it is worth being clear about how it works in practice. Banks do not want to call on your property. A forced sale is slow, costly, and a last resort for them. If a business runs into trouble, the first step is almost always a conversation about a restructured repayment plan. Strong serviceability, meaning the business comfortably covers its loan repayments, makes it far less likely the guarantee is ever tested. A guarantee is a backstop, not a trigger that fires the moment a single repayment is late. ASIC's MoneySmart recommends getting independent legal advice before you sign any guarantee, which is sound.
What can be negotiated before you sign?
The scope of a guarantee is where the real conversation happens. The elements you can influence include:
- Whether your property is directly linked as security, or whether the deal runs on an unsecured basis with the guarantee but no property mortgage.
- Whether the guarantee is limited or unlimited.
- Whether there are release provisions for when you exit the business.
- Sometimes asset exclusions, such as the family home, and expiry dates.
These points are worth raising early, with the right people in the room, rather than at the moment the loan documents land.
"The detail that matters is the scope of the guarantee: what is covered, how far the exposure extends, and whether there is a path to release it later. That is the part worth working through carefully before you sign."
What to do before you sign
Three things are worth doing every time. Read the guarantee, and have your solicitor read it, before you sign anything. Understand which of the three types you are being asked to give. And get clear on the path the lender would actually have to your assets, so there are no surprises later.
A personal guarantee is a normal part of buying a business. Understood properly and structured well, it is something to manage rather than something to fear. For the wider picture on funding a deal, see our guide on how to finance a business acquisition in Australia, or read how we approach acquisition finance.
Frequently asked questions
Not as a first step. A guarantee gives the lender a path to your assets only if the business defaults and cannot repay. In practice the first move is a restructured repayment plan, and a forced sale is a last resort. Strong serviceability makes it far less likely the guarantee is ever tested.
An unlimited guarantee makes you liable for the full debt plus interest and recovery costs. A limited guarantee caps your liability at a set amount or share, which matters most when several investors each want to cap their exposure. A limited guarantee has to be negotiated and documented before settlement.
Not automatically. A guarantee can stay binding for years after you resign as a director or sell your shares, unless it is formally released in writing. If you expect to exit, negotiate release provisions up front and confirm in writing with the lender once the conditions are met.
The guarantee is designed to reach through a company or trust to the individual behind the deal, so the structure on its own does not remove it. The lender knows the business sits in a structure, and the guarantee is how they keep a line to you. What you can shape is the scope of the guarantee.
This article is general information and does not constitute financial or legal advice. Personal guarantees carry real legal consequences, and the right structure depends on your circumstances. Speak to your solicitor and accountant before you sign.
Weighing an acquisition?
If you are looking at a business and want to understand what a guarantee would look like for your situation, tell us about the deal. We will walk through the structure and the lenders most likely to support it.