Lenders will typically require a personal guarantee when providing unsecured small business loans. However, you can consider several business loan options if you are not ready to put up your personal assets as collateral. These loans tend to have higher interest rates than those backs by collateral but will help spare you the anxiety.
What Is a Personal Guarantee?
A personal guarantee, or joint-and-several liability, is simply a legal promise to repay a loan advanced to a business in which you are an executive or partner. In short, you will be a co-signer to your business. If the company is unable to repay the loan, you will be legally responsible for repaying the debt. In case you cannot make payments, the lender will have the right to claim your personal assets.
Most financial lenders consider small businesses to be risky borrowers, which is why the lenders will require the entities to meet certain requirements relating to collateral, revenue, and time in business. With unsecured loans, lenders will want to be sure that the loan and interests will be paid back. A personal guarantee will provide the said certainty.
Business Loans with No Personal Guarantee
Most lenders have a personal guarantee requirement for unsecured small business loans. However, there are a few business loan options without personal guarantee you can consider.
Invoice financing is a short-term loan that is extended by a lender based on an outstanding invoice. The invoice will serve as collateral, allowing you to get the money you need quickly. Most of these loans have no minimum credit requirement.
Line of Credit
A line of credit allows borrowers to take out loans in increments, repay and borrow again, provided they do not exceed their borrowing limit. You will need to pay interest on the outstanding amount when the line is open for borrowing.
Contract financing is designed mainly for government contractors and contractors to Fortune 500 companies. These loans do not have personal credit or revenue requirements.
Securing a business loan without a personal guarantee can be tough. Pendleton Commercial Financing offers affordable financial products to help small businesses grow. Contact us today to learn more about our business loan options.