How to Get a Business Loan With No Personal Guarantee

A business loan that doesn’t require a personal guarantee is a great source of financing for entrepreneurs and small business owners with strong, established credit. There are several types of business loans that you can get that don’t require personal guarantees. In this guide, we’ll explore the types of loans available and the steps to secure financing.

If you're trying to get a business loan that doesn't require a personal guarantee, BusinessLoans.com may be able to help. BusinessLoans.com is an online marketplace that can help you compare loan offers from multiple lenders.

What Is an Unsecured Loan

An unsecured loan is a type of loan that doesn’t require any form of collateral or personal guarantee. Unlike secured loans, where assets such as real estate or vehicles are used as security, unsecured loans are based solely on the borrower’s creditworthiness. This form of lending is inherently risky for lenders, as they have no assets to seize in the event of a default, which is why unsecured loans often have higher interest rates than those with collateral.

Despite their differences, unsecured loans work in essentially the same way as secured loans. The borrower applies for the loan, and the lender assesses their creditworthiness using factors such as credit history, income, and existing debts. The loan is approved and issued if the applicant is deemed a good credit risk. The borrower must then repay it over an agreed period with interest. 

Types of Business Loans That Don’t Have Personal Guarantees

There are a few types of business financing that do not require guarantees, allowing entrepreneurs to secure funds without the risk of personal financial loss. These lending options can provide businesses with the necessary financial boost while also maintaining the borrower’s personal financial security. Below are just a few:

Crowdfunding

Crowdfunding is a popular method of raising capital for businesses, particularly startups. It involves gathering small amounts of money from a large number of people, typically through crowdfunding platforms. While companies usually use crowdfunding to raise equity capital, it’s also a tool for using debt financing. However, it does require a compelling business idea or product that can attract investors.

Venture Capital Financing

Venture capital (VC) financing is another option where personal guarantees are not required. VC firms invest in startups or young companies with the potential for high growth. In exchange for the investment, the VC firm usually demands an equity stake in the company. However, VC firms and private equity groups sometimes extend debt financing. The key requirement here is a robust business model with high growth potential, as VC firms generally seek out businesses that can deliver substantial returns.

Peer-to-Peer Lending

Peer-to-peer (P2P) lending involves borrowing money from individuals instead of institutions. Using P2P platforms, individuals looking to invest their cash can lend to businesses in exchange for a return on their investment in the form of interest. These loans are usually unsecured, meaning they don’t require a personal guarantee.

Invoice Factoring

Invoice factoring is a type of funding where a business sells its outstanding invoices to a third party at a discount. This third party – typically a factoring company – will then collect payment on those invoices from the business’s customers. Because factoring is based on receivables, it does not require a personal guarantee. However, this type of financing only applies to companies that operate with a B2B model and have outstanding invoices.

Merchant Cash Advances

A merchant cash advance (MCA) is a type of funding where a company receives a lump sum of money in exchange for a portion of its future credit or debit card sales. The MCA provider recoups the advance by taking a percentage of the business’s daily card transactions. Because repayments are taken directly from sales, MCAs do not require personal guarantees. Still, they necessitate a steady stream of card transactions to qualify.

How To Get a Small Business Loan Without a Personal Guarantee

Securing a small business loan without a personal guarantee requires researching your options, creating a business case, applying for a loan, and settling on terms. While the exact steps vary by lender and financing type, here’s the general process:

1. Consider Your Business Needs 

The first step before looking for loan options is to evaluate your funding requirements along with your current financial health. Understand how much financing your business needs and how you plan to use it. At the same time, review your business’s credit profile and financial statements. Ensuring your business has a positive performance history and a good credit score is crucial, as this increases your chance of securing financing.

2. Explore Different Loan Options

As outlined above, several types of loans don’t require personal guarantees. Each of these options has its own benefits and eligibility requirements. It’s essential to research each option thoroughly and understand which one aligns best with your business needs and financial situation.

3. Prepare a Solid Business Plan

For many types of business financing, lenders like to see a strong business plan that shows a clear path to growth and profitability. Include a detailed description of your business model, offerings, market analysis, sales and marketing strategy, and financial projections. 

4. Apply for Financing

Once you’ve assessed your business needs, explored loan options, and prepared your business plan, it’s time to apply for the loan. Ensure that your application is complete and includes all required documents. This might include financial statements, tax returns, legal documents, and your business plan. If you're applying online through a marketplace with BusinessLoans.com, loan offices can help you through this process.

5. Negotiate Terms

If your loan application is approved, you’ll have the opportunity to negotiate the loan terms. This includes the loan amount, interest rate, repayment schedule, and, most importantly, the issue of security, including personal guarantees. Be clear and firm that you’re seeking a loan without a personal guarantee. 

Each lending institution and financial product can have its own rules and criteria. While several types of financing don’t require personal guarantees, others do. If you’re unsure which option may be best for you, consult with a financial advisor or loan broker to understand the best options for your specific circumstances.