Businesses are always considering getting a small business loan. But before you go off to a lender and apply, you will need to consider if you will be needing a personal guarantee to secure the loan. This article describes how you can get a small business loan without a personal guarantee.
What is a Personal Guarantee
A personal guarantee is someone who co-signs to your business on the loan, this could be you or someone else. They will be the person, or persons, who will be liable for the repayment of the loan if the business is unable to make repayments.
The purpose of a personal guarantee
Small business loans are very risky for lenders. Therefore, lenders require minimum revenue and time in business. They also require collateral which can be difficult to provide. If your business does not meet these standards, the lender will require a personal guarantee as security.
It is more likely that a business will default on a loan than an individual. Therefore, if the business cannot make payments, the guarantee is legally liable to make the payments. And if the personal guarantee is unable to make repayments, the lender has the right to claim the personal assets of the personal guarantee. Such as the home, car, or investments for repayment.
getting a small business loan without a personal guarantee
If you are unwilling to offer a personal guarantee for a loan, you might want to consider an alternative. This gives the business time until it has been running for more than two years and there is enough evidence for strong financial grounds and building your credit score.
Determine the need for a lender to be able to occupy a small business loan without a personal guarantee. This is when lenders might consider waiving the need for collateral or a personal guarantee.
If you go the alternative funding route, remember that interest rates may be higher than a business loan. Read this article on the alternatives you may consider, they include crowdfunding, angel investors, credit cards, or friends & family. Another way of getting funding is to get a merchant cash advance.
There are other options out there and do not feel that you need to sacrifice your personal belongings to get a small business loan.
What Is An Unsecured Loan & How Does It Work?
An unsecured loan does not need any sort of security. Instead, lenders approve unsecured loans based on a borrower’s creditworthiness rather than the borrower’s assets as collateral. Therefore, Personal loans, student loans, and credit cards are examples of unsecured loans.
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