The credit card catch putting directors’ homes at risk

For many directors, a business credit card is simply another way to manage routine expenses. It pays for software subscriptions, travel, stock and the unexpected bills that arrive before customers settle their invoices.

Its familiarity can make it appear less consequential than a formal business loan. However, the paperwork may contain a clause that changes the risk significantly: a personal guarantee.

A personal guarantee allows a lender to pursue the individual who signed it if the company cannot repay its debt. This means the protection normally associated with operating through a limited company may not extend to the guaranteed borrowing. Personal savings, investments and, in some circumstances, a director’s home could be exposed.

That risk deserves closer attention as more businesses use short-term finance to support their everyday operations.

Why everyday borrowing carries personal risk

The British Business Bank found that credit cards and overdrafts were the most commonly used finance products among smaller businesses in the third quarter of 2025. Around half of smaller businesses used some form of external finance during the year.

Credit cards are popular for understandable reasons. They are flexible, familiar and can help a business bridge the gap between paying suppliers and receiving customer payments. Yet these practical advantages can encourage directors to treat an application as an administrative task rather than a significant financial commitment.

Purbeck Insurance Services says personal guarantees are a standard requirement on many small business credit cards. The guarantee may be contained in the application’s terms and conditions rather than presented as a separate lending agreement, making it easier to overlook.

The sums involved may also appear manageable compared with a six-figure loan. But several cards, overdrafts, asset finance agreements, leases and supplier arrangements can create a substantial combined exposure.

Directors should therefore look beyond the credit limit and interest rate. They need to establish whether they are signing personally, what events would allow the lender to enforce the guarantee and whether the guarantee is capped at a specific amount.

Liquidation does not cancel a guarantee

The issue becomes particularly important when a company enters financial distress.

There were 1,931 registered company insolvencies in England and Wales in July 2026, according to the latest Insolvency Service figures. This was 5% higher than in June, although 5% lower than in July 2025.

Creditors’ voluntary liquidations accounted for 1,497 cases, or 78% of the total. The number of CVLs rose 9% compared with June but remained 3% below the level recorded a year earlier.

A CVL enables the directors of an insolvent company to close it voluntarily under the supervision of a licensed insolvency practitioner. The process deals with the company’s liabilities, but it does not automatically extinguish a director’s separate obligations under a personal guarantee.

If the business cannot repay guaranteed borrowing, the lender may seek payment from the director. The precise consequences will depend on the wording of the agreement, the outstanding balance and the individual’s circumstances.

“The 9% rise in creditors’ voluntary liquidations in July, from June, is concerning,” says Todd Davison, managing director of Purbeck Insurance Services. “Every CVL is a director who has reached the end of the road and taken the very difficult decision to close down their business.”

Davison warns that the financial effects can extend beyond the company when directors have used personal guarantees to secure finance, lease premises or maintain supplier arrangements.

“Insolvency wipes out the company’s liability, not the director’s, and that includes the personal guarantee behind a business credit card,” he adds.

Working-capital pressure is increasing exposure

Purbeck’s figures for the second quarter of 2026 suggest personally guaranteed borrowing is becoming more common. Applications relating to personal guarantee-backed finance rose 63% year on year, while the average loan value exceeded £300,000 for the second consecutive quarter, reaching £317,000.

Working capital accounted for 36.2% of applications and has almost doubled as a proportion of applications in two years. This indicates that many businesses are borrowing to meet immediate operating costs rather than solely to fund expansion.

Startups also borrowed more than established businesses for the first time in more than a year. The average startup loan reached £345,000, potentially placing significant personal risk on directors before their companies have developed a long trading history or substantial financial reserves.

Borrowing for working capital is not inherently a sign that a business is failing. Seasonal demand, delayed customer payments and investment in new contracts can all create legitimate short-term funding needs. The danger arises when borrowing repeatedly covers a structural cash-flow shortfall without addressing its cause.

What directors should check before signing

Directors need a complete picture of their personal exposure across the business. That means reviewing credit cards alongside loans, overdrafts, leases, asset finance and supplier agreements.

Before accepting new finance, directors should identify whether the agreement contains a personal guarantee, whether liability is capped and how interest, fees and recovery costs could affect the final amount owed. They should also check whether the guarantee continues after the facility is replaced, refinanced or no longer used.

Where several directors are involved, it is important to understand whether liability is divided between them or “joint and several”. Under a joint and several guarantee, a lender may be able to pursue one guarantor for the whole outstanding amount rather than an equal share.

Directors should take independent legal and financial advice if the wording or potential consequences are unclear. They may also wish to discuss whether the guarantee can be limited, replaced with other security or protected through appropriate insurance.

Above all, a business credit card should be treated with the same care as any other credit agreement. The application may be routine, but the promise behind it can be profoundly personal.

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