Personal guarantees and security: the questions to ask before you sign anything

Security and guarantees are the part of a business loan that owners most often skim — and the part that matters most if things go wrong. The repayment decides how the loan feels month to month. The security and guarantees decide what’s at stake.

Here’s what each means in plain terms, and the questions to ask before you sign.

What’s the difference between security and a guarantee?

Security is an asset the lender can rely on if the loan isn’t repaid. It might be:

• a property, through a first mortgage, second mortgage or caveat
• a specific piece of equipment or a vehicle
• all of the business’s present and future assets, under a general security arrangement
• nothing at all, for some unsecured facilities

A guarantee is a promise by a person to repay the business’s debt if the business can’t. It’s most often given by directors or owners, and it makes the guarantor personally responsible.

Many business loans involve both. An unsecured business loan often still comes with a director’s guarantee. A property-secured loan may involve the property owner as a guarantor if they aren’t the borrower.

What should I ask about security?

• What exactly is the security? A named property, specific equipment, all business assets, or nothing?
• If it’s property, is it a first mortgage, second mortgage or caveat?
• Will you register anything on the PPSR? If so, over which assets?
• Does the security cover only this loan, or any other debts I have with you?
• When and how is security released at the end? Is there a discharge fee?

The Personal Property Securities Register is the national register where security interests in personal property — vehicles, machinery, stock and even intangible assets — are registered and searched. A lender taking security over business assets will usually register there. It’s worth knowing what’s being registered, because future lenders and buyers will see it.

What should I ask about a personal guarantee?

• Who needs to guarantee? All directors? Shareholders? Spouses?
• Is the guarantee limited to a set amount, or does it cover everything owed?
• Does it cover only this loan, or future borrowing too?
• Does it cover costs and interest if the lender has to recover the debt?
• How and when does the guarantee end?

A limited guarantee caps your personal exposure. An unlimited one covers the whole debt plus costs. The difference can be very large, so ask plainly.

Planning to discuss security with a specialist? Request your call-back here and bring these questions.

How do the common structures compare?

Structure	What’s at stake	Often used for
Property-secured, owner is borrower	The property	Larger loans, $20,000 to $5,000,000
Property-secured, third-party owner	The third party’s property	When the business owner doesn’t hold property themselves
Equipment as security	The equipment	Vehicles, machinery
General security over business assets plus director guarantee	Business assets and the director personally	Many unsecured-by-property business loans
Director guarantee only	The director personally	Smaller unsecured facilities

Why does this matter even for company loans?

Because trading through a company doesn’t always keep debt away from you. A personal guarantee is a direct personal promise. Separately, directors can also face personal liability for some tax debts — under the ATO’s director penalty regime, for unpaid PAYG withholding, GST and super guarantee charge. If a loan is being used to deal with those debts, the stakes for directors are already personal, which is worth factoring into any decision.

What if someone else is offering their property or guarantee?

This is the question to slow down on. When a parent, partner or friend who isn’t involved in the business offers their home as security or signs a guarantee, they’re taking on risk for a business they don’t control. Before they agree:

• they should understand exactly what they’re signing and what could happen if the business can’t repay
• they should get independent legal advice — separate from yours and the lender’s
• the loan should genuinely be affordable for the business, without relying on their assets

A good specialist will raise this with you directly.

Are there protections for small businesses?

Some. ASIC notes that small business contracts for financial products and services — including business loans — are covered by unfair contract term protections where at least one party has fewer than 100 employees or turnover under $10 million, and the upfront price is $5 million or less. An unfair term can be declared void. That’s a safety net, not a substitute for understanding what you sign. Our page on business loan red flags covers other things to watch for.

How do I explain my assets on the first call?

You don’t need a formal statement of position for a first call, but a quick summary helps the specialist understand what security options exist. Jot down:

• Property — each address, who owns it, rough value, what’s owed and to whom.
• Vehicles and equipment — what the business owns outright and what’s already financed.
• Existing security — any lender that already holds a mortgage, a general security arrangement or a PPSR registration.
• Guarantees already given — to other lenders, landlords or suppliers.

The last one surprises people. A personal guarantee on a shop lease or a trade account is still a guarantee, and a lender will want to know about it. Having the list ready means the conversation about security is quick and accurate, rather than pieced together from memory.

Ready to talk through what’s involved?

Knowing exactly what’s at stake is part of choosing the right loan, and a good first call should make it plain. There’s no credit check to ask, your details go to one team instead of being broadcast to lenders, and a real specialist reads your situation before they ring.

Please tell us accurately about any property, who owns it and the amount you need — it’s how we match you properly on the first call. Pick your window and request a call-back.