Directors of UK small and medium-sized enterprises (SMEs) could be personally pursued for debts incurred on business credit cards, even when operating through a limited company, according to industry experts. The warning follows a rise in creditors' voluntary liquidations (CVLs) and highlights a little-known clause in many flexible finance agreements.
Flexible finance, including small business credit cards, remains one of the most commonly used borrowing methods among UK SMEs, yet many directors are unaware that such cards can carry a personal guarantee. This means that if the business cannot repay the debt, the lender can pursue the director's personal assets, undermining the protection typically associated with limited liability.
Rise in CVLs and personal liability risk
Todd Davison, managing director of Purbeck Insurance Services, said: "The 9% rise in creditors' voluntary liquidations (CVL) in July, from June, is concerning – every CVL is a director who has reached the end of the road and taken the very difficult decision to close down their business. In most cases, the cost of doing business has just become too much, and that decision will ripple through their lives, the people they employ and the communities in which they operate."
Davison added: "A CVL can also make the director personally liable for any debt their business may owe, if they have given personal guarantees to secure finance, lease premises, or keep suppliers on side while trying to keep the business trading." He stressed: "Insolvency wipes out the company's liability, not the director's – and that includes the personal guarantee behind a business credit card."
Experts: Guarantees are central to lending
Harvey Dhillon, founder and chief executive of Zmartly, said: "A personal guarantee is not the small print. It is the reason you were lent the money at all." He explained that a guarantee sits outside the cap of limited liability because it is a separate promise from the director to the lender. "When the company cannot pay, the lender comes to you, and limited liability is no answer," Dhillon said.
Tony Sanchez, founder of Bridging Loan Directory, admitted to being unaware of the potential personal guarantee on his own company credit card. "I have a company credit card, but I was not aware that it might carry a personal guarantee. Like many directors, I assumed the protection provided by operating through a limited company extended to routine card borrowing unless I had knowingly signed a separate guarantee," he said.
Impact on directors and next steps
The findings underscore that directors should review their existing credit card agreements to check for personal guarantee clauses before assuming their liability is capped. The 9% monthly rise in CVLs, as reported in July, indicates growing financial pressure on UK businesses, and any personal guarantee could convert a company debt into a personal one during insolvency proceedings.
Directors considering new borrowing or facing financial difficulty are advised to examine all terms carefully and seek professional advice on the implications of personal guarantees. The consequences of a CVL extend beyond the business itself, affecting directors' personal finances, employees, and wider communities, according to Davison.
