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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?

Your personal guarantee essentially makes you a co-signer on the business loan you’re about to apply for. If the company is unable to pay off the debt, you’re legally liable for making payments. Because small business lending is risky, most lenders have a minimum revenue requirement and sometimes will ask for collateral. With unsecured loans, the lender needs certainty that it will get its money back if the business doesn’t work out.
 
Having said that, it’s possible to get a business loan without personal guarantees. For example, with invoice financing, also known as invoice advancing, you can get an advance up to 100% of your outstanding invoice. Invoice factoring companies use the invoice as collateral in case you are unable to repay the loan. The terms can include 24 or 48 weeks, and you can get financing for several million dollars. Most invoice factoring companies will charge 5-10% of the total invoice value. 
 
To qualify for invoice factoring, which is a type of business loan without personal guarantee, you need a business checking account. You also need to connect your accounting software, and have 3-6 months worth of data. There is no minimum credit requirement. 
 
 

Can you get a business loan without using your personal credit at all?

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.

Do you have to have credit in order to get a business loan?

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.

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