Can I get out of a personal guarantee when I sell my business?

Usually only if the lender agrees, or the debt is repaid and the guarantee is formally released. A sale of shares does not end a guarantee on its own, because the guarantee is a separate contract between the guarantor and the bank. The usual routes are a refinancing by the buyer, or a bank-approved substitute guarantor. If neither is available, a seller may take an indemnity from the buyer, which helps only so far as the buyer can pay.

Does a personal guarantee end when the loan is repaid?

Not necessarily. Many guarantees are continuing and cover everything the company owes the bank, now or later, so repaying one facility leaves the guarantee in place for others, including new ones. Once all the debt is cleared, the guarantor should ask for written confirmation that the guarantee is released and for any mortgage or other security supporting it to be discharged. Otherwise it may remain on the bank's records and in force.

Does resigning as a director end a personal guarantee?

No, not by itself. The guarantee is a personal promise that does not depend on holding office or owning shares. A former director can remain liable for debts the company takes on after leaving if the guarantee is continuing and has not been terminated. Someone leaving should identify every guarantee they have given and seek a written release, or check whether the document allows notice to stop liability for future advances.

Can a bank refuse to release a personal guarantee?

Generally yes, unless the guarantee itself sets out release conditions the guarantor has met, or the debt has been fully repaid. The bank took the guarantee as part of its approval, and has no general duty to give it up because the business has improved. Where it declines, the useful follow-up is what it would accept instead: a lower cap, a stepped reduction, additional company security, or a substitute guarantor.

// WORKED EXAMPLETHE ARITHMETIC A DECISION RESTS ON

Personal Guarantee Release: a Worked Example

The bank gives it up once. The good year may not last.

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED 2026-11-09 · 6 MIN READ

// THE SHORT ANSWER

Asking a bank to let go of a personal guarantee is asking it to lend the same money with one fewer way of getting it back. What it gives up is whatever the guarantor owns outside the company, the guarantor's reason to stay engaged if trading turns, and the chance to ask for any of it later, since a new guarantee needs the person's agreement. A bank therefore tests the request as if lending afresh without the guarantee, on a normal year rather than the best one, and often answers with a cap or a stepped reduction instead of a clean release.

BASIS Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.

// MAKE THE CALL

Issue 03 — Kauri Dairy Holdings. The patriarch is retiring. The bank hears about the succession plan from the accountant first. Your call first, then the senior banker's.

Read the file →

PART OF What Your Bank Holds as Security

// 01 — WHAT THE BANK GIVES UP

A guarantee does three things for a lender that the company's own security cannot. It reaches assets outside the company: a house, an investment property, savings. It keeps the owner engaged when trading turns, because walking away has a price. And it gives the bank a stronger position in any later restructuring, because the person who must find the money is also the person deciding whether more equity goes in. A release removes all three at the same moment, and none of them appears in a ratio.

It is also hard to reverse. A new guarantee needs the individual's fresh agreement, which is unlikely to come when the business has weakened. That is why a lender treats a request as a fresh credit decision rather than an amendment and, as the guide to personal guarantees sets out, asks whether the lending stands up without it.

// 02 — HOW A RELEASE IS DONE

A guarantee usually ends only in the way it says it ends. A continuing guarantee over all of a company's debts is not finished because one loan has been repaid, or because the guarantor has resigned or sold. The reliable end is a written release from the lender. Some guarantees let the guarantor give notice that stops liability for future advances, leaving what is already owed in place.

Full release the guarantor is out, on stated conditions

Lower cap the guarantee stays, for a smaller amount

Stepped cap the amount falls as tests are met

Substitution a buyer or new shareholder signs in place

Exchange more company security or cash in return

Three details travel with the deed. A mortgage over the guarantor's home is a separate security with its own discharge, and releasing the guarantee does not by itself lift it. Where there are co-guarantors, letting one go can at general law discharge or reduce the others unless the document allows it, which bank forms commonly do. And some releases are conditional on earlier repayments not being set aside in a later insolvency, a narrow revival that has nothing to do with trading getting worse.

Australia's Banking Code of Practice sets a floor on part of this ground. Where an individual guarantees a loan to another individual or a small business and the Code applies, the guarantor can ask in writing to limit the guarantee, though the bank need not agree in every case, and can end liability by paying the lower of the debt and the guarantee limit, or by other arrangements the bank accepts. Elsewhere the guarantee document and the lender's agreement decide most of it.

// 03 — THE EXAMPLE

A couple who own a tile importer with two showrooms, constructed for this page like every figure in it, owe the bank US$3.5m. They have given a joint guarantee limited to US$1.5m, and they own a home and an investment property with US$2.0m of equity between them. The company's assets would raise about US$1.9m in a forced sale. After the best year in the company's history, with EBITDA of US$1.6m against a five-year average of US$1.0m, they ask to be released.

Leverage on the best year: 3.5 ÷ 1.6 = 2.19×

Leverage on the five-year average: 3.5 ÷ 1.0 = 3.50×

If the company failed With guarantee Released

Company security 1.9 1.9

Guarantee 1.5 –

Recovered 3.4 1.9

Owed 3.5 3.5

Loss 0.1 1.6

Extra loss if it fails: 1.5

At a 2% annual chance of failure: 1.5 × 2% = US$30,000 a year

As margin on the debt: 30,000 ÷ 3,500,000 = 0.86%

The 2% is this example's grade, not a market figure, and the last line is only the part that can be counted. It leaves out the owners' reason to fight for the business in a bad year. And the 2% itself would be too low if the bank graded the business on its best year alone.

The bank declines a clean release and offers a schedule. The debt falls by US$0.4m a year, the cap will track the gap between the debt and the security, and each step needs annual accounts showing the covenants met and a fresh valuation holding the security at US$1.9m. A year that misses leaves the cap where it stands.

Year Debt Security Gap Cap

Now 3.5 1.9 1.6 1.5

1 3.1 1.9 1.2 1.2

2 2.7 1.9 0.8 0.8

3 2.3 1.9 0.4 0.4

4 1.9 1.9 0.0 released

The couple get a dated route out. The bank keeps cover while the debt exceeds what the company's assets would raise. The schedule belongs to this file and is not a formula.

// 04 — HOW IT DIFFERS FROM A CAP OR AN INDEMNITY

A limited guarantee keeps the person liable for a smaller amount; a release ends the liability. A partial release lets a secured asset go while the debt and the guarantee stay. And an indemnity from a buyer or a continuing shareholder, which a seller often accepts when the bank will not move, is a promise between those two people. It gives the seller a claim against whoever gave it, and leaves the bank free to pursue the seller.

Substitution is the closest neighbour. A buyer who signs a new guarantee replaces one person's assets and motivation with another's, so the bank examines the new guarantor's means rather than treating the swap as neutral. A sale usually raises this question together with the change of control clause.

DEFINED IN ONE PARAGRAPH → · PERSONAL GUARANTEES → · ISSUE 03 · THE SUCCESSION FILE →

// 05 — WHERE IT DECIDES A FILE

The request tends to arrive when the numbers are at their best, which is when saying yes looks cheapest. A lender reads across a full cycle, looks at what else in the structure is changing, and asks why now. Succession is the hardest case: the older generation wants out as the younger takes on more, often while land or assets move too. That is the file in Issue 03.

For a borrower, the best time to negotiate a release is the day the guarantee is signed, when conditions can be written in: a cap, a repayment milestone, a date for review. A later request works best as a proposal showing how the company stands alone. For a desk, the useful record of a refusal is what would change the answer, so the next request starts from evidence.

// SOURCES

The documents the statements on this page rest on. Each was opened and checked when cited.

Australian Banking Association, Banking Code of Practice (2025), Part B6 — paragraphs 100, 116 and 123 — Applies to guarantors of loans to another individual or a small business where the Code applies, and sets out how such a guarantor may ask to limit a guarantee and how liability may be ended — section 02.

// QUESTIONS PEOPLE ASK

Can I get out of a personal guarantee when I sell my business?: Usually only if the lender agrees, or the debt is repaid and the guarantee is formally released. A sale of shares does not end a guarantee on its own, because the guarantee is a separate contract between the guarantor and the bank. The usual routes are a refinancing by the buyer, or a bank-approved substitute guarantor. If neither is available, a seller may take an indemnity from the buyer, which helps only so far as the buyer can pay.
Does a personal guarantee end when the loan is repaid?: Not necessarily. Many guarantees are continuing and cover everything the company owes the bank, now or later, so repaying one facility leaves the guarantee in place for others, including new ones. Once all the debt is cleared, the guarantor should ask for written confirmation that the guarantee is released and for any mortgage or other security supporting it to be discharged. Otherwise it may remain on the bank's records and in force.
Does resigning as a director end a personal guarantee?: No, not by itself. The guarantee is a personal promise that does not depend on holding office or owning shares. A former director can remain liable for debts the company takes on after leaving if the guarantee is continuing and has not been terminated. Someone leaving should identify every guarantee they have given and seek a written release, or check whether the document allows notice to stop liability for future advances.
Can a bank refuse to release a personal guarantee?: Generally yes, unless the guarantee itself sets out release conditions the guarantor has met, or the debt has been fully repaid. The bank took the guarantee as part of its approval, and has no general duty to give it up because the business has improved. Where it declines, the useful follow-up is what it would accept instead: a lower cap, a stepped reduction, additional company security, or a substitute guarantor.

// NEXT TO IT

// ON WHOSE DESK

The seats that read this term in an ordinary week. Each page says what the seat is for, who arrives in it, and the shape of the round it runs.

Credit sanctionerHolds delegated authority and signs — or declines — the lending the front line brings.
Legal counselAdvises the bank on what it can do, drafts and negotiates what it signs, and manages what goes wrong.
Lending operations officerTurns an approval into a working facility — documentation, security, drawdown, and the register that says what the bank actually holds.

THE IN-TRAY · ONE MINUTE

Make the call on one file.

A short file on the ground this page covers. Every option opens with how far it sits from a senior banker’s read.

THE CALL · THE LOAN · PROTECTION

A borrower fails. The bank holds a floating charge over its stock and debtors. Employees are owed wages, and the tax authority is owed sales tax.

Who may be paid before the bank from those assets?

7 MORE ON THE LOAN · PROTECTION →WHERE DO YOU READ FROM? THE PLACEMENT →

THE READING ROOMIN ONE PARAGRAPHPersonal guarantee release What does releasing a personal guarantee actually cost the bank?