Can You Get a Business Line of Credit Without a Personal Guarantee?
Are you looking for a business line of credit without a personal guarantee? This article will help you understand what’s needed to get a credit line without a personal guarantee, and where you can get one with the best rates and terms.
But in a pinch, a business line of credit provides you with the flexible and fast financing that you can use for most of your business expenses. The credit can help you in marketing, expanding your business location, hiring or paying your staff, and much more. Even better, you’re not obliged to use all the money at ago. Instead, draw from the line whatever amount is enough for your business needs and only pay the interest of what you used.
There’re two types of business lines of credit. The unsecured and secured. The secured business line of credit is backed by a personal guarantee or collateral. But the unsecured line of credit isn’t backed by collateral or personal guarantees. Most new entrepreneurs and business owners prefer unsecured business lines of credit because they are less risky for their businesses.
So what is a line of credit without a personal guarantee? Check out the basics of a business line of credit without a personal guarantee.
What Is a Business Line of Credit Without a Personal Guarantee?
A personal guarantee makes you a cosigner on your business line of credit. This means, in case your business is unable to repay the credit fully, you’ll be legally countable for the payments.
There are two types of personal guarantees; the limited and unlimited.
The Unlimited Personal Guarantee
With an unlimited personal guarantee, you’ll be needed to repay the full amount of the loan balance individually. For instance if your truck business draws $100k from a business line of credit with an unlimited personal guarantee, then you’ll be responsible for repaying the balance if the business can’t.
The Limited Personal Guarantee
This means, you’ll share the responsibility to pay of the debt with other partners if your business is unable. Say you have a construction company and acquires a $100K with onother partner owning 50% of the business. You may each be liable to personally pay upto 50% balance if your business fails to pay of the debt. Still, a limited guarantee may include several and joint liability. This means , your financier may require payment from all or some of the guarantors, or from one.
Some of the personal assets your financier may recuperate for the loan debt may include your home and car, among other properties.
A personal guarantee provides an added layer to the banks and lenders. Because they can potentially recuperate the finances. Consequently, financiers may offer you better terms and rates if you back the credit with a personal guarantee.
Note that, some lenders like banks and credit unions may be less willing to approve business lines of credit without a personal guarantee because they seem riskier for them. But alternative financiers may highly consider other factors like your FICO score, business history, and business revenue, among other factors.
Another better alternative you can use to secure a business line of credit without a guarantee, is paying higher interest rates.
How can you use a personal line of credit without a personal guarantee?
How to Use a Business Line of Credit Without a Personal Guarantee
You can use a business line of credit without a personal guarantee for any business expense just like the rest of personal lines of credit. This type of financing option is flexible and can be used to fund various business expenses.
Here are some of the popular projects business owners use for business lines of credit without a guarantee;
- Funding operating expenses
- Balancing the cash flow
- Purchase or updating equipment and software
- Hire new employees
- Renovate your location or relocating to a new space
- Purchase an inventory
- Business emergency funds and more
Get a Business Line of Credit Without a Personal Guarantee
Finding a business line of credit without a personal guarantee is difficult. You may have to review several offers, but still, most lenders may demand solid proof that your business is capable of repaying before approval. Additionally, it’s important to note that lenders have different terms and interests so work with a lender offering the best terms.
Frequently Asked Questions for Business Line of Credit Without a Personal Guarantee
Q. Do I have to personally guarantee a business line of credit?
A. Typically, you need to be prepared to sign a personal guarantee to qualify for a higher business line of credit. Although it isn’t a mandatory requirement, most financiers request a personal guarantee for reassurance that you’ll feel obliged to repay the funds you receive.
Q. What happens if there is no personal guarantee?
A. Financiers may require imprresive, consistent revenue and high FICO scores. But still you may qualify for lower limits to reduce the risk from your lender.
Q. Can you get a business line of credit without a personal guarantee?
A. Yes, the options may be limited but are available. Also, business lines of credit without personal guarantees often have higher interest rates than standard business lines of credit.
Q. Can you negotiate a personal guarantee?
A. After the agreement and signing of the personal guarrantee you can negotiate for lower interest rates later when there’s rapid progress with your business financials.
