A business line of credit offers fast, flexible financing that can be put towards almost any type of business expense. You can use a line of credit to hire new staff, expand to a new location, invest in marketing, and so much more. Best of all, you’re under no obligation to use the funds right away. Simply withdraw as needs come up, and you’ll only have to pay interest on what you borrow.
There are two main types of business lines of credit: secured and unsecured. A secured line of credit is backed by collateral or a personal guarantee, while an unsecured line of credit isn’t backed by anything. Most businesses would prefer a business line of credit without a personal guarantee – since these are less risky for borrowers.
Here are the basics on business lines of credit without a personal guarantee and how to get one.
What Is a Business Line of Credit Without a Personal Guarantee?
A personal guarantee essentially makes you a co-signer on your business loan. In other words, if your business is unable to pay off the debt, you, as the business owner, will be held legally liable for the payments.
If this happens, the lender has the right to claim your personal assets in order to recuperate their funds. You could potentially lose your home, car, or another type of property.
If you have multiple business partners, a lender may require a limited personal guarantee. This type of guarantee assigns each owner or partner responsible for a percentage of the debt.
Personal guarantees add an extra layer of protection for banks and lenders. In case your business defaults, they still have a chance to recuperate their funds. As a result, some lenders may be willing to offer you better rates and terms if you agree to back your business line of credit with a personal guarantee.
On the other hand, banks and lenders may be hesitant to approve you for a business line of credit without a personal guarantee because this funding type is more risky for them. If you’re trying to apply for this type of financing, know that your credit score, business history, revenue levels, and other criteria will have more weight.
If you’re willing to put up with higher interest rates in exchange for not being required to sign a personal guarantee, an unsecured business line of credit may be a good choice.
Pros and Cons of Getting a Business Line of Credit Without a Personal Guarantee
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It all comes down to risk. Personal guarantees are used to mitigate the lender’s risk of financial loss in the event of a default. Much like offering collateral, this gives the lender an extra layer of security and transfers the risk to the borrower.
By offering financing without a personal guarantee, the lender is taking on an elevated level of risk. They handle this by raising eligibility requirements and decreasing funding amounts for less qualified borrowers.
How to Use a Business Line of Credit Without a Personal Guarantee
A business line of credit without a personal guarantee can be used exactly the same way as any other type of line of credit. This type of funding is flexible and can be put towards almost any business expense. Many businesses will use a line of credit to:
- Smooth cash flow issues
- Bridge slow seasons
- Finance operating expenses
- Hire new employees
- Purchase or update new equipment and software
- Expand to a new location or renovate an existing location
- Purchase inventory, materials, or supplies
- Take advantage of growth opportunities
- Emergency fund
- And many more
You can use your funds for almost any business purpose. Business lines of credit with no personal guarantees come with less risk than other financing options, which will allow you to use it to its fullest potential.
Business Line of Credit Without Personal Guarantee: Qualification Process
Your first step in securing a no-pg line of credit is to meet a lender’s minimum qualifications, which will vary depending on the organization you’re working with. In general, banks and credit unions have stricter requirements compared to non-bank lenders.
Here are the average requirements you’ll have to meet for each type of lender.
| Banks and Credit Unions | Non-Bank Lenders |
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Keep in mind that the lack of a personal guarantee raises the eligibility requirements. Credit score becomes much more important, so be sure to enter the application process with the strongest credit possible.
Business Line of Credit Without Personal Guarantee: How to Apply
Now that you understand how to qualify for a small business line of credit with no personal guarantee, let’s explore the steps you’ll have to take to qualify for this type of financing.
- Evaluate Your Business’s Financials – First and foremost, you’ll need to assess the financial side of your business and determine a safe level of debt to take on. This way, you can identify the best options available to you after you start applying.
- Research Lenders – Next, you’ll need to research lenders and find 5-10 top choices you can apply with. You’ll take their qualifications, requested documentation, and reputation into account during your search.
- Prepare the Required Documentation – While the specific documentation required will vary from lender to lender, there are a few commonly requested documents that you should have ready. Make sure you have business bank statements, articles of incorporation, cash flow statements, your EIN number, and a list of any outstanding loans attached to your business (if applicable).
- Fill Out Applications – Finally, it’s time to fill out application forms with the lenders of your choice. Be sure to complete each one accurately and honestly, as any discrepancies and return a falsely denied application, forcing you to start this step over again.
Remember – Every contract has room for negotiation. If an offer would be perfect with another month added to the repayment or a small percentage of interest removed, speak with that lender and see if you can reach an agreement.
It’s all about convincing the lender your business doesn’t pose a risk of default. One of the best ways to accomplish this is to bring hard data concerning your growth plan to the table, including forecasts, projections, and any real-world calculations you can find through running your business numbers.
Alternative Financing Options
Here are a few alternatives to business lines of credit without personal guarantees, just in case you change your mind.
| Type of Financing | Description |
| Revenue-Based Financing | Revenue-based financing leverages your business’s profitability for access to capital. Credit score plays a less significant role, and there are generally no personal guarantees associated with this type of financing.
However, the format of this solution is different from a business line of credit. Instead of providing access to capital on an as-needed basis, revenue-based financing provides a lump sum for the borrower to manage over a short-term schedule (up to 18 months). |
| Accounts Receivable Financing | There are two forms of A/R financing: factoring and loans. When factoring, the borrower essentially “sells” their accounts receivable to a lender in exchange for funding (~80 to 90% of the total value). On the other hand, an accounts receivable loan leverages the borrower’s accounts receivable as collateral for funding, which reduces eligibility requirements and eliminates the need for a personal guarantee. |
| Secured Term Loans | Instead of a personal guarantee, secured term loans come with a collateral requirement. This type of financing is relatively easy to qualify for (if you can collateralize an asset) and comes with high funding amounts, allowing borrowers to invest significantly in their business. |
| Business Credit Cards | Although not a traditional type of financing, business credit cards are a great resource for startups and newer businesses that can’t meet the eligibility requirements of a business lender. The credit limit won’t be nearly as high as a business line of credit, but it’s still a viable option for investing in growth. |
Get a Business Line of Credit Without a Personal Guarantee
If you’re looking for a business line of credit without a personal guarantee, it helps to be able to review multiple offers. This would allow you to compare rates and terms to select the best fit.
But you don’t have to apply to numerous lenders all at once. National is the top online business financing marketplace that automatically connects your application to over 75 different lenders to generate personalized offers instantly.
- Apply once and receive multiple offers
- Compare approvals alongside expert guidance from our team, making it much easier to select the one that best aligns with your business goals
- Learn strategies to maximize the value of your financing
- Gain a long-term financing partner to cover capital needs as fast and efficiently as possible
Connect with our experts or fill out our digital application to learn about fast funding solutions for your business!
Disclaimer: The information and insights in this article are provided for informational purposes only, and do not constitute financial, legal, tax, business or personal advice from National Business Capital and the author. Do not rely on this information as advice and please consult with your financial advisor, accountant and/or attorney before making any decisions. If you rely solely on this information it is at your own risk. The information is true and accurate to the best of our knowledge, but there may be errors, omissions, or mistakes.