This article is about how you can get a business loan with personal credit. Contrary to popular belief, if you have poor, or bad credit, it’s still possible to get a business loan. It’s not impossible to get a business loan without a personal guarantee.
Most small business loans require a personal guarantee and that’s especially true with unsecured loans without any collateral. If you’re not sure you want your personal assets on the line if the business fails there aren’t a lot of options. There are a few business loans and lines of credit that you can get even without a personal guarantee. While lenders who offer these loans charge high interest rates, significantly higher than those with collateral and/or personal assets, it can still be worth it.
What type of business loans qualify for without a personal guarantee
What is a personal guarantee?
A personal guarantee, also called a joint and several liability, makes you a co-signer to your business on the business loan. If your company can’t pay off the debt, then you’re legally liable for making payments. If you are unable to do that, then the lender claim your personal assets, like home, car, investments, etc. Depending on the lender you might be required to sign an unlimited personal guarantee, or a limited one. With an unlimited personal guarantee, you are agreeing to be liable for paying the entire loan principal and interest if your business is unable to do so. This is usually the type of guarantee you’ll need to sign if you’re the sole owner of the business. When you sign a limited personal guarantee, which is common with businesses that have multiple owners – each owner is assigned a % of the debt, and your liability is limited to your % shares.
Why lenders require a personal guarantee
Small business lending is risky. Because of this, most lenders have a minimum requirement for revenue and time in business, in addition to collateral. With unsecured loans, the lender needs assurances it’ll get its money back if your business doesn’t work. This comes in the form of a personal guarantee.
Business loans with no personal guarantee
Business loans with no personal guarantee are rare, but do exist.
Fundbox – this is an example of a business loan with no personal guarantee. Invoice financing and a line of credit is a great fit for businesses with short term capital needs. With invoice financing you’re able to get an advance on up to 100% of an invoice which is due to you. Fundbox will use the collateral in case you are unable to repay the loan.
Can you get a business loan without personal guarantee?
You can take steps to build your business credit even if your personal credit isn’t amazing. Once you establish good business credit it’s possible to get financing WITHOUT a personal guarantee.
More than likely, you will need excellent business credit scores in addition to personal credit, in order to qualify for SBA loans or traditional loans from a bank. This all depends on the individual lender in question, and other business factors like your revenue, cash flow, and time in business.