Business Lines of Credit Without Personal Guarantee
You may have heard of business lines of credit without a personal guarantee and may have also heard that they are hard to come by.
A personal guarantee, also called joint-and-several liability, makes you a co-signer to your business on the loan.
If your company can’t pay off the debt that comes with a business loan, business line, business credit card, or any other type of business debt, as the business owner, you’re legally liable for making payments.
As the person responsible for the loan, if you can’t pay back the debt, the lender can claim your personal assets, such as your home, car, or other property to recoup their loss.
Depending on the lender, you may be required to sign an unlimited personal guarantee or a limited one.
If you sign an unlimited personal guarantee, you agree to be liable for paying the entirety of the loan’s principal and interest if your business or borrower can’t.
99% of the time, this is the type of personal guarantee that lenders will require.
In some cases, lenders will have you sign a limited personal guarantee, and this is more common with businesses that have multiple partners.
In this case, each owner or partner is assigned a percentage of the debt.
Small business lending is risky because many small business don’t yet have a proven track record for success or a business credit score.
New businesses may not have built much of a credit history yet.
As a result, most business lenders have minimum requirements for revenue and time in business, plus collateral or personal guarantees, as well as a decent personal credit score.
However there are a few business loans and lines of credit that you can get without a personal guarantee.
Although the options are pretty limited, there are a few worth mentioning.
Just keep in mind that they tend to charge higher interest rates than loans secured by collateral or your personal assets.
With that being said, paying a higher interest rate vs. putting your personal assets on the line might be a better option for some.
Here are some Business Lines of Credit Without a Personal Guarantee:
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.
Many traditional lender don’t offer this type of business funding but this alternative lender is worth looking into.
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 which takes the pressure off of your company’s creditworthiness.
Getting loans without some sort of personal guarantee can be really challenging.
If you’ve already applied and haven’t been successful at securing a Business Lines of Credit Without Personal Guarantee, it might be 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.
As a small business owner, having cash available gives your company the working capital it needs to grow or perhaps make it through more challenging seasons where cash flow may be tight.
A small business loan or other form of business financing can make a world of difference.