What happens if you act as a guarantor for a friend’s business loan and they disappear
It sounds like helping a friend, but standing as a guarantor on a business loan means taking full legal responsibility if they fail to repay. Here’s what really happens if your friend disappears, what lenders can do, and what steps you can take to protect yourself.
When a close friend or relative asks you to be a guarantor for a business loan, it can feel like a gesture of trust. They promise they just need a “bit of help to get started” and that it’s only a formality. But legally, signing as a guarantor means you are accepting a binding obligation to repay the debt in full if they cannot or will not.
So what happens if your friend takes out the loan, stops paying, or disappears altogether? The short answer is that you could become responsible for every penny — including interest and legal costs.
This guide explains what being a guarantor really means, what lenders can do if the borrower defaults, and what steps you can take to limit the damage if you are left with their debt.
What being a guarantor actually means
Citizens Advice defines a loan guarantor as someone who agrees to repay a borrower’s debt if the borrower fails to do so.
When you sign a guarantor agreement, you are entering into a legally binding contract with the lender — not just with your friend. You become a party to the credit agreement, meaning:
- You guarantee the loan’s repayment if the borrower defaults.
- The lender can pursue you for the full balance, not just part of it.
- You are also liable for interest, fees, and recovery costs that continue to accrue after default.
- Your personal assets and credit file are at risk if you fail to pay.
MoneyHelper and the Financial Ombudsman Service confirm that once the borrower defaults, lenders are entitled to pursue the guarantor immediately, without first exhausting recovery options against the borrower.
What happens when the borrower disappears
If your friend stops responding to the lender or vanishes, you will likely start receiving formal letters or phone calls. The lender will:
- Send a default notice to the borrower and copy you as the guarantor.
- Demand payment from you under the terms of the guarantee.
- Add late payment interest and collection fees.
- If payment is not made, they can take court action against you directly.
In court, the lender does not need to prove that your friend acted fraudulently — only that you signed the guarantee and that the borrower has defaulted. If judgment is granted, you can be ordered to repay the debt, and if you still cannot, the lender may:
- Apply for a County Court Judgment (CCJ) against you.
- Instruct bailiffs to recover goods.
- Apply for a charging order to secure the debt against your home.
- Damage your credit score for up to six years.
Can you get out of the guarantee?
In most cases, no — once signed, a personal guarantee is binding unless the lender has agreed in writing to release you. The Financial Ombudsman has ruled in several cases that guarantors cannot withdraw or cancel their liability after funds are released, even if the borrower disappears soon after.
However, there are exceptions where you might challenge the agreement:
1. You were pressured or misled
If you can show that you were coerced, misled, or not given proper time to get legal advice, you may be able to argue that the contract is unenforceable.
The courts and the Ombudsman have occasionally sided with guarantors where there was “undue influence”, especially if the lender knew you were under pressure or did not understand the risks.
2. The lender failed to check affordability
Under consumer credit rules, lenders are expected to check that both the borrower and the guarantor can afford the repayments before approving the loan.
If they did not carry out proper checks, or if you were clearly unable to afford the repayments at the time, you can complain to the lender and then to the Financial Ombudsman Service.
3. The business loan was misrepresented
If the loan was presented to you as “risk-free” or if key terms were hidden, this could also give you grounds to challenge the guarantee. Keep copies of all emails, messages, and any documents you signed.
What you should do if it happens to you
If your friend has vanished and the lender is contacting you, take the following steps immediately.
1. Do not ignore the letters
Ignoring lender correspondence will only make things worse. Contact them in writing to confirm receipt and ask for a copy of the guarantee agreement and a statement of account showing how much is owed.
2. Get independent debt advice
Contact free, regulated debt advice services such as:
- Citizens Advice – advice on guarantor loans and court procedure.
- StepChange Debt Charity – help negotiating with creditors.
- National Debtline – free phone advice on liability and legal enforcement.
These organisations are authorised and have experience dealing with lender disputes and guarantor liability.
3. Check whether the lender is regulated
If the lender is authorised by the Financial Conduct Authority (FCA), they must follow strict conduct rules, including fair treatment of customers and clear communication.
If they are not authorised, the loan could be unenforceable in court without the regulator’s permission.
You can check a firm’s status on the Financial Services Register on the FCA website.
4. Consider a formal complaint
If you believe the lender acted unfairly, send a formal complaint outlining:
- How you became the guarantor.
- Whether you received clear information.
- Why you believe the checks or explanations were inadequate.
If the lender does not resolve your complaint within eight weeks, you can escalate it to the Financial Ombudsman Service, which can order compensation or debt cancellation.
5. Protect your assets and credit
If court action is likely, seek legal advice quickly. You may need to:
- Submit a defence explaining why you should not be liable.
- Negotiate a payment plan if the debt is valid but unaffordable.
- Avoid signing new guarantees or transferring assets, which can be seen as evasion.
Court judgments can affect your credit rating for six years, even if the original loan was not in your name.
What if the borrower committed fraud?
If your friend obtained the loan by fraud, such as falsifying income or business details, report it to the lender’s fraud team and to Action Fraud, the national fraud reporting centre.
Fraud does not automatically remove your liability, but if the lender failed to spot obvious signs or verify the information, you may have stronger grounds to dispute the guarantee.
In serious cases, the police or the National Crime Agency may become involved. Keep all communication and evidence you have.
Lessons for the future
MoneyHelper’s consumer protection pages warn that guarantor agreements are one of the most misunderstood parts of personal finance. Once signed, they are almost impossible to reverse.
Before ever agreeing to be a guarantor, always:
- Get independent legal advice before signing.
- Make sure you can afford to pay the full amount if the borrower defaults.
- Ask for a copy of all loan terms and the guarantee before funds are released.
- Treat a guarantee like taking out the loan yourself — because financially, it almost is.
Key points to remember
- Acting as a guarantor is a serious legal commitment. If the borrower defaults or disappears, the lender can pursue you directly for repayment.
- You can challenge liability only if the lender breached regulations, failed to check affordability, or there was undue pressure or misrepresentation.
- Never sign a guarantee without independent advice.
- If you are already in trouble, contact the lender early and seek advice from a free debt service or legal adviser.
- Keep written records of every communication and make sure you know your rights under consumer credit law.
Standing as a guarantor can feel like helping a friend, but in practice, you are giving a lender permission to treat you as the backup borrower. Understanding that before signing — or acting fast if things go wrong — can prevent one signature from turning into years of debt.
References:
- Citizens Advice: “Being a guarantor for a loan” (citizensadvice.org.uk)
- MoneyHelper: “Guarantor loans – what you need to know” (moneyhelper.org.uk)
- Financial Conduct Authority: CONC 5.2A – Assessing creditworthiness (fca.org.uk)
- Financial Ombudsman Service: Guarantor lending case studies (financial-ombudsman.org.uk)
- StepChange: “Guarantor loan debt advice” (stepchange.org)
