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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. StreetShares is one such example.
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, there aren’t many options available. 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. Nav can help you find the right financing resources for your business — get started now.
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4 responses to “Business Loans You Can Get Without a Personal Guarantee”
Hi so does that mean that if I have an EIDL loan from SBA for which there is no personal guarantee it was just business as collateral but I had to sell my business at a loss that I am not personally responsible for that loan
Jane – it seems that way but there appears to be a conflict between what the SBA states on the website and what it states in the contract. If you have an EIDL that you can’t repay if you sell I would recommend you get legal advice.
I have a rather frustrating scenario. I have a 730+/- score but I don’t have much revolving credit so I’ve been declined for conventional loans and credit cards. I currently have 2 franchise restaurants generating about $65k per month each. But I can’t get funding. Need your advice.
Please feel free to reach out to Nav’s Credit & Lending team. They are happy to help you evaluate options. It helps if you have a free Nav account first, but not required.