How to Get a Business Loan with No Personal Guarantee

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If you are seeking financing for your business, you may be considering a myriad of options. It’s important to understand the different types of loans available to you and to recognize when a personal guarantee may be required. Unsecured business loans (loans with no collateral needed) are available if you look for them.

What Is a Personal Guarantee for a Business Loan?

A personal guarantee grants a bank the right to go after your personal assets in the case that your business is unable to repay a business loan. Essentially, the lender will be able to obtain the right to your home, vehicle, or other high-value assets if the loan is not repaid.

Personal guarantees may be unlimited or limited. An unlimited personal guarantee makes the business owner entirely responsible for the repayment of a business loan using their own assets. 

Limited personal guarantees are generally given when there are multiple owners of a business. In these cases, owners may be responsible for the repayment of a business loan up to a specified percentage.

Banks often require personal guarantees for business loans when the company does not have a long history of operations or when the future of the business is uncertain. Obtaining a personal guarantee for a business loan essentially grants the bank collateral, which can make a business loan less risky for the lender.

Can I Get a Business Loan with No Personal Guarantee?

It is possible to get a business loan with no personal guarantee, but the terms required to obtain one are much more strict, and the interest rate will be high. To obtain a business loan without a personal guarantee, it is recommended to set your business up as either a corporation or LLC and then work on building business credit quickly. 

If your business is set up as a sole proprietorship or partnership, you will likely need to give a personal guarantee or another form of collateral to obtain the most competitive lending terms. It helps to have a strong personal credit history when trying to get a business loan without using collateral.

What Are Unsecured Business Loans?

Unsecured business loans don’t require any collateral in order to secure the loan. Thus, there will be no pledge of real estate, vehicles, or other high-value assets when financing is obtained. If the business defaults on the loan, the lender must initiate a lawsuit in order to collect on the balance of the loan.

How Do Unsecured Business Loans Work?

Unsecured business loans work like any other type of financing and provide your business with funds to help with working capital needs or to help with emergencies. 

Types of unsecured business loans include term loans, lines of credit, invoice factoring, and merchant cash advances. They are often faster to get than other traditional financing but may entail high interest rates and can require a personal guarantee.

Secured vs. Unsecured Loans

What is the difference between secured and unsecured loans?

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Secured Loans

Secured loans require the borrower to put up an asset as collateral against a loan. Such an asset can include a home or a vehicle. Secured loans are common with real estate mortgages or car loans. If the borrower defaults on payment, the lender assumes ownership of the asset and can use it to collect on the balance of the loan. 

A secured loan is generally best when acquiring an asset for a business, such as an office property or equipment to use in the business. The loan will have a lower interest rate than an unsecured loan and may not require a personal guarantee.

Unsecured Loans

Unsecured loans don’t require any collateral when the loan is initiated. If the borrower defaults on payment, the lender must initiate a lawsuit to collect any funds owed. 

These types of business loans are best for everyday working capital needs, to initially start a business, or to have in case of emergency. Unsecured loans will generally have a higher rate of interest and may require a personal guarantee.

How to Get a Business Loan with No Personal Guarantee

To obtain unsecured business loans (no guarantee), you must have an understanding of the funding types available. There are four general types of loans that can be obtained without a personal guarantee. These include a term loan, business line of credit, merchant invoicing, and invoice financing. 

Term loans and business lines of credit are available through traditional commercial banks, but it may be more difficult to obtain unsecured loans with no personal guarantee. There are alternative lenders available, but they usually charge a higher interest rate when no personal guarantee is provided.

Merchant invoicing and invoice financing involve obtaining funds through a company's accounts receivable. Essentially, invoices are used as collateral in order to obtain funds. Either a business customer or lender can provide these types of loans, but the cost of the funding can be high, especially when customers do not repay their invoices on time. 

Types of Loans that Don’t Require Collateral

There are some forms of financing that don’t require collateral. These include:

Unsecured Business Lines of Credit

With this type of loan, a lender approves you and your business for a specified amount that can be used whenever needed. It is similar to a credit card in that you use only what you need, and interest is charged on only the amount borrowed. Unsecured business lines of credit are best for working capital needs or for emergency funding.

Merchant Cash Advances

A merchant cash advance provides a specific amount of money as a percentage of forecasted sales. The advance is repaid as customers submit their payments for goods or services on a daily, weekly, or monthly basis. 

Merchant cash advances have extremely high interest rates. It is important to have a clear understanding of the repayment agreement before agreeing to a merchant cash advance.

Business Credit Cards

Similar to an unsecured business line of credit, a business credit card provides your company with a specified amount of funds that can be used as needed. 

Interest and monthly repayments are based on the amount borrowed and the terms of the agreement. These types of loans are best for working capital requirements or emergency funding.

Other Business Funding Options

There are a couple of other ways to finance your business operations, including:

Equipment Financing

Equipment financing is used to purchase specific equipment for your business. Usually, the equipment is used as collateral for the loan. If the company defaults on repayment, the lender will have the right to seize the equipment to settle the balance of the loan. 

This type of financing is great when purchasing a piece of equipment that can be used to support the operations of a business. Interest rates for equipment financing are lower than they would be for an unsecured line of credit.

Invoice Financing

There are several different methods of invoice financing, but they all require pledging customer invoices in exchange for funding. The amount received through invoice financing will vary but generally ranges from 50% to 80% of the value of the invoices pledged, depending on the risk profile of the customer. 

The lender charges the business a fee for invoice financing, which can be very expensive, especially if customers do not pay on time. This type of financing can be obtained without a personal guarantee.

Can I Get a Business Loan or Other Funding?

Need funding to grow your business? Fundid is re-imagining how businesses get the funding they need to grow. Join our Grant Match Program and search for grants in the Grant Marketplace.