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6 min read. April 7, 2022 by Joe Camberato
Can I get an unsecured business loan with no personal guarantee?
Going through your options for business financing, you’ve probably asked yourself this question 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 loans 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.
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 in 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.
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 as to why businesses may choose to get an unsecured business loan with no personal guarantee.
Take a look at how the pros and cons compare.
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 are 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.
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.
When it comes to finding unsecured business loans with no personal guarantee, you have a couple of different options. Here are some of the most common types of financing solutions in this category.
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.
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.
Merchant cash advances are 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 merchant cash advances, 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, merchant cash advances function 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.
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 in 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.
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 the 60-second application.
Additionally, you can check some of our additional readings:
National Business Capital is the top FinTech marketplace offering small business loans and financing. Harnessing the power of leading technology and smart people, we’ve streamlined the application process to secure over $1 Billion in financing for business owners nationwide.
Our Business Financing Experts work within our 75+ Lender platform to match you with the right option. Easily access the best low-interest SBA loans, short and long-term loans, business lines of credit and equipment financing all in one place.
We strengthen local communities one small business loan at a time. For every deal we fund, we donate 10 meals to Feeding America!
Joseph Camberato, CEO of National Business Capital, developed a passion for business at a young age. Joe started his company in 2007 in his spare bedroom and has grown to secure over $1 Billion dollars in financing for small business owners nationwide. National’s team has an amazing culture and has been name the #1 Top Workplace on Long Island 3 years in a row and counting. Joe is a trusted financial expert who’s published more than 2,000 articles in the last 3 years. His articles have generated over 5 million page views and has been featured on blogs such as Google News, Yahoo, CNBC, Forbes Magazine, etc. His passion has also inspired him to build the "GrowByJoe” YouTube channel where he shares his insights into small business trends and tips for growth. Joe also holds a seat on Forbes Finance Council and is an active member of the Young Presidents' Organization (YPO), a global leadership community.