Going through your options for business financing, you’ve probably asked yourself, “Can I get an unsecured business loan with no personal guarantee?” at least once, stumbling across a number of terms that are not always as clear as they sound. In this article, we will answer this question so you don’t have to research any further.
Unsecured business loans are financing options that don’t have collateral requirements. In other words, you won’t need to pledge your personal or business assets in exchange for financing. This can be helpful for a variety of reasons.
For starters, you may not have access to the kind of high-value assets like real estate or equipment that can be used as collateral. Second, unsecured financing greatly diminishes the risk of you losing your assets in case of a default. It’s no wonder why unsecured business loans are highly sought-after.
However, personal guarantee requirements can complicate things a bit. Although it is possible to get an unsecured business loan with no personal guarantee, it isn’t always easy.
Here’s everything you need to know about getting an unsecured business loan with no personal guarantee.
What Is a Personal Guarantee On a Business Loan?
A personal guarantee for a business loan is a legal agreement that gives lenders the right to seize your personal assets in case your business is unable to repay its loan. Lenders can go after any asset you own, such as your home, vehicle, investment account, or more.
If this sounds a lot like collateral requirements – or secured business loans – it’s because they all essentially function the same way.
Personal guarantees are a way for lenders to minimize their risks. Typically, they will ask for collateral in exchange for financing. This is the most common practice with a secured business loan.
However, not every business has access to enough valuable assets. In this case, lenders can ask for a personal guarantee, which essentially puts your personal assets at risk in the event of a default.
Banks usually ask for personal guarantees if your business is new, if your credit is low, or if there is cause for concern surrounding your growth prospects. In fact, it’s almost impossible to find an unsecured business loan with no guarantee from a traditional bank.
Personal guarantees can either be unlimited or limited. An unlimited personal guarantee makes you, the business owner, entirely responsible for the loan’s repayment. Limited personal guarantees spread the responsibility of repayment among multiple business owners.
Pros and Cons of an Unsecured Business Loan with No Personal Guarantee
Although personal guarantees add an additional layer of risk for you, the business owner, they’re not always a bad idea. However, there are still many reasons why businesses may choose to get an unsecured business loan with no personal guarantee.
Take a look at how the pros and cons of unsecured business loans compare.
Pros
- Improved approval odds
If your business’s financials aren’t in great shape, you may have a hard time securing capital. This could be due to a low credit score, lack of business history, or any number of other reasons. In this situation, a personal guarantee will make you appear less risky and help boost your approval odds.
This is especially true when you’re working with traditional lenders, like banks, that are known for having lower approval odds.
- Better interest rates
Because business loans backed by a personal guarantee are less risky for banks, lenders may be willing to give you better interest rates in exchange. This can translate to more savings on your part.
- Higher funding amounts
Another advantage of getting an unsecured business loan with no personal guarantee is higher funding amounts. Lenders may be more willing to approve larger funding amounts on business loans backed by personal guarantees.
This can be beneficial, especially if you are looking to finance a large investment or expense.
Cons
- Risk of losing personal assets
Personal guarantees can put you and your finances in an incredibly dangerous situation if your business is unable to meet its debt obligations. Lenders will have the right to go after your personal assets.
This can include your primary residence, vehicles, investment accounts, and a number of other assets in your name.
- Long-term financial harm
The impact of losing a home or another major asset because of a personal guarantee on a business loan can be long-lasting.
You may find yourself in a situation where a significant amount of your savings have been liquidated, or you have to declare bankruptcy. It can take years before your finances fully recover.
Types of Unsecured Business Loans With No Personal Guarantee
| Loan Type | Description |
| Term Loans | Term loans are the most standard type of business loan. They feature a lump-sum payment that’s repaid over regular installments for a set period of time.
It’s true that most term loans from banks require collateral or a personal guarantee, but you’ll find it’s easier to acquire short-term unsecured business loans without a personal guarantee if you work with an online lender. Short-term loans are typically issued with repayment periods of one year or less, and they can be used to fund a large variety of business expenses and projects |
| Credit cards | Business credit cards can help you cover a number of different expenses. Plus, if your credit is good, you may even be able to access certain benefits, such as a temporary promotional 0% APR period.
Unfortunately, credit cards typically feature smaller funding amounts, which may make them an inadequate source of financing for all types of business expenses. Plus, they come with high-interest rates. |
| Revenue-Based Financing | Revenue-based financing is a unique type of financing featuring a lump-sum, upfront cash infusion that’s repaid via a percentage of your business’s future sales.
With revenue-based financing, you won’t have to worry about keeping track of payments. Instead, repayment is automatically deducted from each credit card sale for a set period of time – typically a year or less. In this way, revenue-based financing functions more as an advance rather than a traditional business loan. This financing type features high approval rates and fast funding times. Instead of looking into your credit score, availability of collateral, or time in business – your revenue levels will have the most weight. |
How Can I Get a Business Loan With No Personal Guarantee?
Unsecured business loans without a personal guarantee carry significantly less risk for borrowers. For this reason, they can be fairly sought after and difficult to obtain. Nonetheless, it is still possible to get a business loan with no guarantee.
If you’re looking to apply at a bank, however, you may run into considerable roadblocks. Aside from long, drawn-out application processes, banks are notorious for low approval rates. Many are also simply unwilling to offer unsecured business loans without a personal guarantee.
You’ll find it’s a lot easier and more straightforward to apply with online lenders. Online lenders not only have higher approval rates, but they’re also significantly faster and more efficient when it comes to the application process. In fact, some businesses have been known to receive their funds as fast as 24 hours when working with an online lender.
Online lenders offer all the main types of unsecured business loans without a personal guarantee. Just make sure to compare different offers to find the best interest rates and terms.
Increase Your Chances of Getting an Unsecured Business Loan With No Personal Guarantee
Personal guarantees are used by lenders to mitigate their risk of financial loss. If you can prove that you don’t pose a risk of default, lenders are less likely to ask for a personal guarantee, although there are some exceptions.
If you’re looking to increase your chances of getting an unsecured business loan with no personal guarantee, follow these tips.
- Proactively Strengthen Your Credit Score – Your FICO score plays an important role in determining your eligibility for financing. If you have a lower score, you can strengthen it before applying and receive better terms.
- Offer Collateral – Although you’re seeking unsecured financing, offering collateral is a way for borrowers to improve their offered terms and remove a personal guarantee requirement. Some lenders impose personal guarantees alongside collateral requirements, though, so make sure to do your research beforehand.
- Negotiate With the Lender – Every contract comes with some degree of negotiation, and borrowers can potentially improve their terms by simply speaking with their lender. It’s not always guaranteed, but it’s a step all borrowers should take to ensure they’re getting the best offer.
- Shop Around – If the lender refuses to waive a personal guarantee, there are hundreds of lenders you can speak with. It’s a good idea to apply with as many bank and non-bank lenders as possible, starting at the beginning of your research, to give yourself options as you choose the right lender.
Alternatives to Unsecured Business Loans
If you’re unable to qualify for an unsecured business loan without a personal guarantee, you shouldn’t give up hope. There are other financing options you can leverage to accomplish your goals, including:
| Type of Financing | Description |
| Secured Business Loans | Secured business loans are “secured” by collateral, which the lender can seize from the borrower if they’re late or default on payments.
The main difference between the two types of financing is the collateral requirement. Most other aspects remain the same, including the ability to use the funds for almost any business purpose. Although most borrowers want to avoid offering collateral, it should be considered if you’re unable to qualify for unsecured financing. |
| Crowdfunding | Crowdfunding platforms, like GoFundMe and Kickstarter, provide a modern touch to traditional fundraising. Businesses can create a page with context about their growth plan and attract donations through incentives.
It’s a great alternative to traditional financing or the old way of fundraising, although it does come with some drawbacks. It’s not guaranteed that you’ll raise the amount you’re searching for, and you’ll also have to honor your promise of offering incentives to donators, which can get expensive. |
| Business Grants | Local, state, and federal jurisdictions offer business grants to promote growth, some of which businesses don’t have to pay back. You can find these resources by researching online, but you should know that many businesses are also applying for the same grants as you.
Competitiveness means that you can’t count on a grant as a sure thing. You won’t know if your business will be selected, so you may have to plan an alternative to prepare for the worst case. Still, it’s a good idea to apply for these grants whenever possible. It could be your lucky day! |
Compare Unsecured Business Loans
It’s much easier to get an unsecured business loan with no personal guarantee when you work with an online lender. The only downside is that online lenders can sometimes be more expensive than banks.
Thankfully, you can work around this by comparing multiple offers and different lenders. One way to accomplish this is by working with a fintech marketplace like National.
National has a network of over 75 different lenders that offer small business loans and other funding solutions personalized to your needs.
Businesses are evaluated on more than just their credit history or collateral requirements. Instead, revenue levels and growth potential play a significant role in the approval decision.
Learn more about the business financing products you could qualify for by filling out our 60-second application.
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Joseph Camberato
Joe Camberato is the CEO and Founder of National Business Capital. Beginning in 2007 out of a spare bedroom, Joe and his team have financed $2+ billion through more than 27,000 transactions for businesses nationwide. He’s made it his calling to deliver the educational and financial resources businesses need to thrive.
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