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Personal Guarantees & Surety

The Hub | Bond Security
Personal guarantees can form part of some surety arrangements, but they are not automatically required for every bond. Security depends on the applicant, financial strength, ownership structure, bond exposure and the appetite of the surety market involved.
Direct Answer

Do Surety Bonds Require a Personal Guarantee?

Not always. Many surety bonds can be supported through a corporate indemnity without requiring directors or shareholders to provide a personal guarantee.
A surety may consider personal support where the applicant has limited financial strength, little trading history, a concentrated ownership structure or where the requested exposure is significant relative to the business.
Requirements vary considerably between surety providers, so the fact that one market requests a personal guarantee does not mean that every market will necessarily require the same structure.
A personal guarantee is not a universal surety requirement
The starting point in many commercial surety cases is the applicant company's corporate indemnity. Additional personal support is normally considered in the context of the wider underwriting risk.
Why It May Be Requested

Why Might a Surety Ask for a Personal Guarantee?

Additional personal support may be considered where the surety wants greater protection than the applicant company alone can provide.
Limited Trading History
A new or recently formed company may have little historic financial strength available to support the obligation.
Weak Financial Position
Losses, negative net assets or weak liquidity may lead some markets to consider additional security.
Significant Bond Exposure
A large bond relative to the size of the business may require a stronger security structure.
Ownership Structure
Where a business is closely owned and controlled, some markets may consider shareholder support relevant.
Corporate Security

What Is the Difference Between a Corporate Indemnity and a Personal Guarantee?

A corporate indemnity is given by a company. A personal guarantee is given by an individual, such as a director or shareholder.
In a typical surety arrangement, the applicant company may provide an indemnity to the surety in connection with the bond. Depending on the case, the surety may also request support from a parent company, another group entity or an individual.
The precise legal effect depends on the documentation used, so independent legal advice should be taken where a personal guarantee or indemnity is being considered.
Related Guidance
Bond Security & Surety Indemnities ›
In simple terms
Corporate indemnity: support provided by a company.
Parent-company indemnity: support provided by a related parent entity.
Personal guarantee: support provided by an individual.
The required structure depends on the underwriting case and market.
Common Misconception

A Personal Guarantee Is Not Automatically Required Because a Bond Is Needed

Surety security is risk-based. The existence of a bond requirement alone does not mean the owners or directors must necessarily expose personal assets.
Strong Corporate Applicant
A financially strong and established business may be acceptable on corporate support alone.
Group Support Available
A stronger parent or related company may sometimes provide the additional support required.
Different Market Appetite
Different surety providers can take different views on the level of security required.
Underwriting Factors

What Influences Whether a Personal Guarantee Is Requested?

Factors can include:
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Financial strength of the applicant company
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Trading history and length of operation
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Net assets and liquidity
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Size and duration of the bond
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Existing bond and contract exposure
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Parent-company or wider group strength
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Ownership and shareholder structure
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Surety market appetite
New Companies & SPVs

Are Personal Guarantees More Common for New Companies?

They can be, because a new company may have limited capital, little trading history and no established record of delivering similar contracts.
However, a personal guarantee is not the only way to support a new-company application. The underwriter may also consider parent company strength, funding, management experience and the wider group.
The purpose of the new entity matters as well. A newly incorporated SPV within a strong and experienced group can present a very different risk from a standalone start-up with no external support.
Related Guidance
Surety Bonds for New Companies & SPVs ›
New company does not automatically mean personal guarantee
The surety is looking for sufficient support behind the obligation. Depending on the structure, that support may come from the company, group, parent, shareholders or a combination of sources.
Financial Weakness

Do Losses or Negative Net Assets Automatically Trigger a Personal Guarantee?

No. Weak financials can make additional security more likely in some markets, but neither a trading loss nor negative net assets create an automatic universal requirement for a personal guarantee.
Negative Net Assets
The surety may examine current trading, liquidity, funding and wider support before deciding what security is appropriate.
Recent Trading Losses
The cause, scale and current direction of trading can matter more than the existence of one historic loss in isolation.
Related Guidance
Negative Net Assets & Surety Bonds ›
Related Guidance
Loss-Making Companies & Surety Bonds ›
Alternatives to Personal Support

Can Parent-Company Support Be Used Instead?

Potentially. Where the applicant forms part of a stronger group, the surety may consider financial or indemnity support from a parent or related company.
Strong Parent Balance Sheet
A financially stronger parent may provide greater support than the standalone applicant.
Group Indemnity
More than one group company may sometimes participate in the security structure.
Funding Support
Existing group funding arrangements may help demonstrate how the applicant is financially supported.
Market Structure

Can a Personal Guarantee Requirement Be Avoided or Reconsidered?

Sometimes. It depends on why the surety is requesting the guarantee and whether another form of support can address the same concern.
Stronger current financial information, parent-company support, additional capital or a different surety market may sometimes lead to a different security structure.
It is important to understand the underwriting reason for the request rather than treating the personal guarantee as a standalone issue.
Questions worth understanding
Why is the personal guarantee being requested?
What risk is the surety trying to address?
Can another company within the group provide support?
Would updated financials change the underwriting view?
Does another market have a different security appetite?
Difficult Placements

What If the Applicant Does Not Want to Provide a Personal Guarantee?

The first step is to understand whether the guarantee is an absolute requirement of that particular surety or whether it reflects concerns that might be addressed another way.
A different market may sometimes take a different view, particularly where the applicant can demonstrate stronger financials, group support or a lower-risk bond structure.
There is no guarantee that a personal guarantee can be removed, but it should not be assumed that one market's position automatically represents the entire surety market.
Related Guidance
Declined Bonds & Alternative Surety Routes ›
The security requirement is part of the underwriting decision
A market asking for a personal guarantee may be responding to a specific financial, structural or exposure concern. Understanding that concern is the key to assessing possible alternatives.
Personal Guarantee Questions

Frequently Asked Questions

Expand a question for general guidance on personal guarantees and surety security.
Do all surety bonds require a personal guarantee?
No. Many surety arrangements can be supported by a corporate indemnity without a personal guarantee. Requirements depend on the applicant and market.
Why has the surety asked me for a personal guarantee?
The surety may want additional support because of limited trading history, weak financials, ownership structure, bond exposure or another underwriting concern.
Is a personal guarantee the same as a corporate indemnity?
No. A corporate indemnity is given by a company, while a personal guarantee or personal indemnity involves an individual.
Can a director be required to personally guarantee a bond?
Some surety markets may request personal support from directors or shareholders in particular circumstances, but it is not a universal requirement.
Do shareholders have to provide personal guarantees?
Not automatically. The required security structure depends on the wider underwriting assessment and the market approached.
Are personal guarantees more common for new companies?
They can be, because a new company may have limited historic financial strength. Parent-company support or other group resources may sometimes be relevant alternatives.
Does an SPV always require a personal guarantee?
No. An SPV may be supported in different ways depending on funding, ownership, group strength, management and the project structure.
Do negative net assets mean a personal guarantee will be required?
Not automatically. Negative net assets can affect underwriting, but the surety will normally consider liquidity, current trading and wider support as well.
Does a trading loss mean a personal guarantee will be required?
Not automatically. The cause and scale of the loss, current trading and overall financial strength are likely to be considered.
Can a parent company guarantee the surety instead?
Potentially. Where a stronger parent exists, the surety may consider parent-company support as part of the security structure.
Can another group company provide support?
Potentially. The surety may consider support from related entities where that support is relevant and acceptable to the market.
Can a personal guarantee requirement be negotiated?
Sometimes. Whether it can be changed depends on why it was requested and whether another form of support can address the underwriting concern.
Can another surety offer terms without a personal guarantee?
Potentially. Different surety markets can have different security appetites, although alternative terms cannot be assumed in every case.
Is a personal guarantee the same as cash collateral?
No. A personal guarantee is a contractual obligation from an individual, whereas cash collateral involves funds or assets being provided as security.
Does a bigger bond make a personal guarantee more likely?
It can. Larger exposure relative to the applicant's financial strength may lead a surety to review the security structure more closely.
Does a personal guarantee stay in place forever?
The duration and release of any guarantee depends on the legal documentation and underlying obligations. Independent legal advice should be taken on the specific terms.
Should I take legal advice before signing a personal guarantee?
Yes. A personal guarantee can create significant personal obligations and independent legal advice should be taken before signing.
Related Guidance

Continue Exploring The Hub

Bond Security
Understand corporate indemnities, group support and collateral.
Bond Security ›
New Companies & SPVs
How security may be considered where trading history is limited.
New Companies & SPVs ›
Negative Net Assets
How balance-sheet weakness can affect surety underwriting.
Negative Net Assets ›
Loss-Making Companies
Understand how historic or current trading losses may be assessed.
Loss-Making Companies ›
Declined Bonds
What to consider if a security requirement has made a placement difficult.
Declined Bonds ›
The Hub
Return to the main SB&G surety knowledge centre.
Explore The Hub ›
Concerned About Personal Security?

Start With the Bond Requirement

Select the relevant bond type to reach its specialist page and proposal form. If a personal guarantee has already been requested, include details of the applicant, financial position and proposed security when emailing SB&G so the wider placement can be considered.
Email the Requirement
This page provides general information about personal guarantees and surety security. It does not constitute legal or financial advice. Personal guarantees, indemnities and other security arrangements can create significant obligations and independent professional advice should be obtained on specific documentation. Surety requirements vary between providers and individual cases.
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