Can I Get an Unsecured Business Loan With No Personal Guarantee?

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.