Business Credit With No Personal Guarantee: Possible or Impossible?

Steps to protecting personal credit and personal liability

Business owner paying bills at laptop in cafe
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Getting credit for your business without personal guarantees isn't something you can accomplish overnight, but it is important, and it’s possible. The fact is banks, and other financial institutions may not extend lines of credit or loans to a business without a personal guarantor and/or collateral. It’s about minimizing risk for the lender and unless your business has substantial revenues or other factors that mitigate risk expect to supply a PG.​

So how do you work towards obtaining credit without supplying a personal guarantee? The key is adhering to a strict plan for building a company’s creditworthiness. For starters, a company should focus on applying for credit that will have a positive impact on the company’s credit reports. This article will outline the steps you need to go through to accomplish this.

  1. Obtain a credit card in the name of your business. Credit cards are available in mind-boggling numbers. As a result, you need to shop around to obtain the best deal, ideally choose business credit cards that report only to business credit files. You also need to watch for the issuer's terms and fees. It will eliminate a lot of footwork on your part when it comes to applying for additional credit with no pg.
  2. Try to apply for a third-party guaranteed loan. This type of loan is one that is commonly issued by banks that service a distressed geographic area or meets technological needs. The Small Business Administration offers a variety of loan programs, and will even guarantee as much as 85% on loans if the borrower ever goes into default. There are also many municipalities that offer these loans as incentives for businesses to invest in their areas.
  1. Save some of the proceeds from the unsecured business loan for your company. As soon as you receive the loan, set aside 20 to 30 percent of the loan amount as a buffer to make sure that your loan payments are on time. The IRS considers these retained or accumulated earnings, and are taxed, but keeping these monies aside to make sure that your loan payments are made on time is worth the extra tax, not to mention the building of your company repayment history. Use these monies to pay back your loan. It will also build your business credit for the next three to five years.
  1. Establish additional vendor lines of credit to diversify your credit profile and let your accounts age. After you have established strong business credit ratings, you will be ready to apply for business credit with much larger credit limits and more favorable terms since you have earned a credit reputation to deserve it.

After you have accomplished all of these steps, especially after you have at least ten positive trade references, you should be able to have enough to get business credit without a personal guarantor. In the meantime, however, there are ways that you can "pad" your chances of getting it by establishing a reputation as a responsible business. These include getting credit cards in your business name from businesses that don't require a personal guarantee. These include Sam's Club® business MasterCard®, which often waves a personal guarantor for companies with large annual revenues.

Admittedly, getting business credit without a personal guarantee isn't easy, but it can be done. Rest assured that when you do try to get business credit and have difficulty, you are going through the same troubles that practically every business owner has gone through and succeeded. It is a very common situation for anyone who is in the process of starting a business.

This process might be difficult to overcome, but it can be done, just as it has been for countless other business owners throughout the country.