Most small business loans require a personal guarantee, especially if they’re unsecured loans without collateral. But if you’re not sure you want your personal assets on the line if your business fails, there aren’t a lot of options.
Fortunately, there are a few business loans and lines of credit that you can get without a personal guarantee. And while they tend to charge higher interest rates than loans secured by collateral or your personal assets, it can be worth it to spare yourself the anxiety.
What is a personal guarantee?
A personal guarantee, also called joint-and-several liability, essential makes you a co-signer to your business on the loan. If your company can’t pay off the debt, you’re legally liable for making payments.
And if you can’t do that, the lender can claim your personal assets, such as your home, car, or investments for repayment.
Depending on the lender, you may be required to sign an unlimited personal guarantee or a limited one. With an unlimited guarantee, you agree to be liable for paying the entirety of the loan’s principal and interest if your business can’t. This is typically always the type of guarantee you’ll sign if you’re the sole owner of your business.
A limited personal guarantee, on the other hand, is common with businesses that have multiple owners. Each owner or partner is assigned a percentage of the debt, and your liability is limited to your share.
Why business lenders require a personal guarantee
Small business lending is a risky affair. As a result, most business lenders have minimum requirements for revenue and time in business, plus collateral.
With unsecured loans, however, the lender needs some form of certainty that it will get its money back if your business doesn’t work out. That certainty comes in the form of a personal guarantee.
Keep in mind, too, that if your business is structured to limit your liability, that doesn’t apply to a personal guarantee.
Business loans with no personal guarantee
Business loans with no personal guarantee requirement are rare, but they do exist. Here are our top choices.
Fundbox offers borrowers two types of business loans: invoice financing and a line of credit. Both options are best for businesses with short-term capital needs.
With invoice financing, you can get an advance on up to 100% of an outstanding invoice that’s due to you. Fundbox uses the invoice as collateral in case you can’t repay.
Repayment terms include 24 or 48 weeks, and you can finance up to $100,000. Fundbox charges 5% to 7% of the total invoice value, giving you an APR of 13.44% to 67.70%.
To qualify for invoice financing, you need a business checking account. You also need to connect your accounting software and have at least three months’ worth of data with it. There’s no minimum credit requirement.
With a Fundbox line of credit, the lender offers financing of up to $100,000 with weekly payments for up to 12 weeks. If you want a credit line increase after your initial draw, though, it may require you to sign a personal guarantee for the added amount. The APR ranges from 10.1% to 68.7%.
To qualify, you typically need to be in business for at least three months with $25,000 or more in annual revenue. You also need a business bank account. There is, however, no minimum credit requirement.
StreetShares requires a personal guarantee on its term loan and line of credit. But you can avoid it if you qualify for the lender’s contract financing.
With this product, you can get up to 90% of a verified invoice amount up to $500,000 total. APRs range from 10% to 12% and your repayment period is based on the terms of the invoice.
To qualify for contract financing, you need to be a prime government contractor or a subcontractor to a Fortune 500 company. That said, there are no revenue or personal credit requirements.
The bottom line
Getting access to a business loan with no personal guarantee isn’t easy. Unless you’re a government contractor or subcontractor to a Fortune 500 company, Fundbox is your best option. Even then, the lender’s short repayment terms and lack of a true business loan could make it difficult to use for some businesses.
As a result, it’s worth considering other lenders that do require a personal guarantee. If you do, be sure to have a business plan and avoid borrowing more than you can personally repay in case the business fails.
While that might be daunting, it can provide you with the resources you need to take your business to the next level.