Business Loans You Can Get Without a Personal Guarantee

A personal guarantee on a business loan reduces a lender’s risk, and ensures that they don’t incur too much loss on the capital they’re lending out. Personal guarantees are a standard practice for most business loans; however, the requirement is ultimately up to the discretion of the lender.

As a borrower, signing a personal guarantee on a small-business loan can increase your likelihood of approval, or improve your interest rates and terms. Business loans you can get without a personal guarantee will depend on factors like your business finances, assets available for collateral, lender policy and business history.

A personal guarantee is a document signed as a part of a business loan agreement promising that an individual borrower will repay the loan in the event that the business can’t. When you sign a personal guarantee, you are essentially acting as a cosigner on your business’s loan, which means that your personal assets may be seized if your business defaults on the loan.

Personal guarantees are common to most business loans — even unsecured business loans often require a borrower, or any owner of over 20% of the business, to sign a personal guarantee.

Business loans that you can get without a personal guarantee normally require some other form of collateral to secure the loan; however, this requirement will vary based on the type of loan and the lender.

Depending on the lender and your creditworthiness, term loans are one of the most affordable types of business loans, especially for large purchases. They provide a lump sum of capital upfront that is repaid over a set period of time, with interest.

While business term loans often require a personal guarantee, you may be able to negotiate, especially if you have strong personal or business collateral to offset the lender’s risk.

Business lines of credit are revolving sources of capital that allow you to spend up to a certain limit, continue to draw on the line once you’ve repaid the amount borrowed and only pay interest on what you’ve drawn.

Similar to a term loan, a business line of credit without a personal guarantee will likely require another way of securing the line. For example, the Wells Fargo Prime Line of Credit does not require a personal guarantee, but is secured instead by a first position lien on business assets.

Because equipment financing loans are inherently secured by the equipment being financed, you may have an easier time finding equipment lenders that don’t require personal guarantees.

Triton Capital, for example, is a California-based lender that provides term loans to finance equipment. They do not require a personal guarantee because the equipment being financed serves as collateral.

Merchant cash advances (MCAs) are not technically structured as loans, and may therefore be more likely than other types of business financing options to waive a personal guarantee requirement. Credibly, for example, is an alternative business lender that does not require a personal guarantee or collateral on its MCAs, and only files a Uniform Commercial Code (UCC) lien on deals over $200,000.

MCAs are not regulated the same way traditional business loans are, and are one of the most expensive and riskiest types of business financing. They are best used for short-term needs, and as a last resort.

Invoice financing is a type of small-business loan that uses your unpaid customer invoices as collateral. With invoice factoring, on the other hand, you actually sell your unpaid customer invoices to a third-party company, which then collects on the invoices.

Both types of lenders are usually more focused on the creditworthiness of your customers, and may therefore not require a personal guarantee; however, this is ultimately dependent on the lender.

Business credit cards function similarly to personal credit cards, wherein you can spend up to a certain limit continually as you pay your balance, and are only charged interest on any unpaid balance you carry over from month to month.

Like other financing options, business credit cards that don’t require personal guarantees have other requirements to offset the risk. Ramp’s corporate card, for example, requires a minimum of $75,000 in a business bank account, while the Sam’s Club Business Mastercard is available without a personal guarantee for businesses with $5 million in annual sales or revenue.

A personal guarantee protects a lender and decreases their risk when lending to your business by allowing them to seize your personal assets in the event of a loan default, helping them recover some of their losses.

When you are willing to sign a personal guarantee, it also shows a lender that you are personally invested in the success of your business, and therefore, have an extra incentive to make your loan payments.

Simply signing a personal guarantee shouldn’t have any immediate consequences to your finances. The document doesn’t cause a business loan to appear on your personal credit report, or allow a lender to seize any personal assets without reason.

If your business is unable to pay the loan, however, a personal guarantee means that you are personally liable. This may mean covering the loan payments from your personal income, or handing over personal assets that can be used to pay off the loan amount.

Finding a business loan that doesn’t require a personal guarantee isn’t impossible, but it may require some negotiation. Since personal guarantees are used to protect lenders, you’ll need to find other ways to offset that risk.

• Separate your business legal structure. Establishing your business as a separate legal entity is likely the first step in avoiding a personal guarantee. As opposed to a sole proprietorship, a corporation or LLC will allow you to build separate business credit, and demonstrate that your business’s cash flow, revenue and assets — and therefore, its ability to repay the loan — are independent of any personal contribution. 

• Establish business credit. Having strong, established business credit that demonstrates a positive history of repayment may offset some of the lender’s risk and show them that your business is likely to repay the loan. The catch is that to build your business credit, you’ll need a loan or a credit card that likely requires a personal guarantee.  

• Offer other high-value collateral. High-value business assets like real estate or large equipment is a great way to offset lender risk, especially if it’s worth more than your personal assets. Certain types of asset-based lending may automatically waive the personal guarantee requirement, but if not, it may be worth trying to negotiate with your lender if you have high-value collateral.