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Personal Guarantees in Construction: When Are They Worth It?
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In the construction sector, offering credit is standard, but getting paid isn’t always guaranteed.
With high insolvency rates, late payment culture, and complex company structures, even the best customer relationships can end in unpaid debt. That’s why more suppliers, merchants and plant hire firms are asking one crucial question:
Should we ask for a personal guarantee?
At Top Service Ltd, we support thousands of credit professionals across the UK construction supply chain. Here’s what we advise when it comes to personal guarantees — and how they can protect your business when things go wrong.
What Is a Personal Guarantee?
A Personal Guarantee (PG) is a legally binding agreement where a director or individual agrees to personally repay a company’s debt if the business itself cannot.
In construction, this is especially useful when supplying to limited companies with few assets or new clients without an established credit history.
In practice, if a customer goes into liquidation, and you don’t have a PG, you could be left with no recovery options.
Why Construction Businesses Are High-Risk Without a PG
The construction sector has the highest insolvency rate in the UK economy, and not just among small businesses.
Here’s why PGs matter more than ever:
- Many construction firms operate with thin margins and high overheads
- Project delays or non-payment from main contractors can cause rapid collapse
- Directors often close one company and reopen it under a new name
- Recovery through insolvency processes is often pennies in the pound, if anything
At Top Service, we’ve seen PGs make the difference between writing off a £50,000 debt… and full recovery.
When Should You Ask for a Personal Guarantee?
Use this quick guide:
| Situation | PG Recommended? | Why |
| New business | ✅ Yes | No trading history, unproven track record |
| Large order or limit increase | ✅ Yes | You’re taking on more risk |
| A company with CCJs or poor credit | ✅ Yes | High chance of default |
| A company in financial distress | ✅ Yes | Safeguards your position |
| Longstanding customer, clean record | ❌ Optional | It may not be necessary, but still worth reviewing |
| Dealing with an individual or sole trader | ❌ Not needed | Already personally liable |
Tip: Don’t wait until there’s a problem. PGs should be signed as part of your credit application or T&Cs — not when debt is already owed.
What Should a Good Personal Guarantee Include?
Make sure your PG is:
- Properly worded and legally enforceable
- Signed in the individual’s capacity
- Linked clearly to the credit facility or account
- Includes no time or limit restrictions, unless you intend them
- Witnessed (adds strength if ever challenged)
A Personal Guarantee Is Only as Strong as the Guarantor
It’s vital to understand that:
- A personal guarantee is only as strong as the individual behind it.
- If the guarantor has:
- No personal assets
- Poor credit history
- High levels of personal debt
- No meaningful income
…then the guarantee may offer little to no real security.
🧠Top Service Tip: Always credit check the individual as well as the company. If they’re unlikely to repay personally, consider lowering the credit limit, requesting pro forma payments, or strengthening your terms in another way.
But What If They Say No?
That’s a real scenario. Some directors will be reluctant to put their name on the line.
When that happens:
- Consider reducing or capping the credit limit
- Request pro forma payment for initial orders
- Offer staged credit (i.e. increase limits only after timely payments)
- Make sure your terms of sale are watertight
Use a Top Service credit report to monitor behaviour closely
You don’t have to say no to the business, but you should adjust your risk strategy accordingly.
How Top Service Ltd Can Help
We’re more than just a credit reference agency. We actively support our customers to:
✅ Identify when a personal guarantee is worth asking for
✅ Provide templates and guidance
✅ Credit check directors as well as businesses
✅ Monitor for changes in trading, payments or risk
✅ Chase unpaid debts efficiently — including PG recovery if needed
Our expert team understands the unique pressures in construction and how to manage credit risk without damaging relationships.
“Minimise debt, maximise cash” is more than a slogan — it’s a service promise.
🧾 Not sure when or how to ask for a personal guarantee?
We’ll show you the best practices and give you tools to make it easy.
👉 Ask an Expert | Register for a Free Trial | Arrange a Demo Call
