What happens to personal guarantees when you sell

If you have run an owner-managed business for years, there is a good chance your name sits behind some of its obligations. Bank facilities, property leases and sometimes key supplier contracts often ask for a personal guarantee. When you sell, those guarantees do not disappear on their own. They need a clear plan, or you can find yourself still responsible for debts and leases long after you have sold the shares.

In this article we explain what personal guarantees usually cover, what buyers and lenders typically do at completion, and the questions worth raising early so you leave the deal with a clean break where that is possible.

Where personal guarantees usually sit

The most common ones are bank overdrafts and loans, asset finance, invoice finance facilities and commercial leases. Some trade suppliers also ask directors to guarantee payment. The guarantee is a promise by you personally that if the company does not pay, the lender or landlord can come to you. Selling the shares does not automatically cancel that promise, because the counterparty's contract is with you as well as with the company.

Why buyers care

A buyer who takes on the company will usually want its banking and property arrangements to continue, or to be replaced on terms they control. They will also want you released from old guarantees so that your ongoing risk is limited to whatever you have agreed in the sale documents, such as warranties. Leaving old guarantees in place creates confusion about who is really standing behind the business after completion.

What typically happens at completion

In a clean deal, the company's facilities are repaid or refinanced on completion, and the lender formally releases your personal guarantees. Where a lease continues, the landlord may agree to release you if the buyer (or a stronger covenant) steps in, sometimes with a temporary rent deposit or a short period of dual support. None of this is automatic. It needs to be written into the completion checklist and chased with the bank and landlord alongside the share transfer.

Questions to ask early

Before you get deep into diligence, it helps to know exactly what you have guaranteed:

• Which facilities, leases and supplier terms carry your personal guarantee, and for what amounts?
• Will the buyer refinance the bank facilities on completion, and will the lender confirm your release in writing?
• For each lease, will the landlord release you, assign the lease, or grant a new lease to the buyer?
• If a release is delayed, how long could you remain on the hook, and is there a rent deposit or indemnity to protect you?
• Are there any guarantees you gave years ago that you had forgotten about?

What if a full release is not available on day one

Sometimes a landlord or lender will not release you until the buyer has traded for a period or provided extra security. That is not ideal, but it can be managed. You will want a clear written plan: who is responsible for the underlying obligation, how long the temporary position lasts, and what indemnity the buyer gives you if a claim is made against you for something that arises after completion. Your solicitor should review that wording carefully, because an informal promise is not enough.

Do not leave it to the last week

Banks and landlords move on their own timelines. Asking for a release in the final days before completion is a common reason deals slip. Pull together a simple schedule of guarantees when you first prepare for a sale, share it with your advisers, and raise it with the buyer early. That way refinancing, landlord consent and release letters sit on the critical path with everything else.

Keep a simple guarantee schedule

A one-page schedule is enough: the counterparty, the contract or facility, the date you signed, the amount or limit if you know it, and whether you believe it is still live. Ask your accountant and solicitor to sense-check it against the company's bank letters, lease files and board minutes. Bring that schedule into early conversations with a buyer. It signals that you are organised, and it stops a forgotten guarantee from appearing late and slowing completion.

Guarantees are separate from sale warranties

Warranties in the sale agreement are promises about the business at the time of sale. Personal guarantees are older promises to banks, landlords or suppliers. Closing the sale does not rewrite those older contracts. Treat them as their own workstream: list them, agree who will refinance or replace them, and collect written releases. Mixing the two topics in negotiation often leads to owners assuming they are free when they are not.

How we approach this

When we buy a business, we expect to understand the guarantees that sit behind it and to plan releases as part of completion, not as an afterthought. We want owners to leave with a clean personal position wherever that can be arranged. If you are thinking about a sale and want to talk through how your facilities and leases might be handled, a short, confidential call is a sensible first step, with no obligation either way.