A business loan with no personal guarantee is a big risk for the business owner. Most conventional banks are not willing to invest in a business that is based on a promise to pay them back. The business may be an excellent success, however, if the market turns and it fails there will be no personal assets to fall back on. In addition, the business will need the financing it needs to continue expanding. The key is to convince a bank that despite the personal guarantee, the business has a sound business plan that will ensure it will succeed beyond the guarantee.
To show the bank that you are serious about fulfilling your obligations, it helps to provide some solid information that will convince them of your business' long term viability. When looking for a business loan with no personal guarantee, the most common issue is liquidity. The ability to pay back the loan is critical.
The ability to pay the loan on time will depend largely on the business plan you create. It should include projected sales figures and a detailed business plan including a financial forecast. Along with these figures should be projected expenses. These will be necessary to give the lender an idea of the amount of money they can reasonably expect to recoup from the business. The more accurate the business plan, the better off the business will be in meeting its obligations.
Another important issue to consider is the personal guarantee that you provide. The business is under no legal obligation to provide this guarantee, nor is it responsible for any failure of performance. However, it is important to understand that providing a personal guarantee is not without risk. In many instances, business owners have provided their personal assets as guarantees to other business owners. If those businesses fail as well, the personal guarantee is nothing to help relieve the burden.
As a result, it is essential that business owners carefully consider the risks associated with providing personal guarantees for business loans. A wise business owner will work closely with an attorney or certified public accountant to determine the best course of action for securing a business loan with no personal guarantee. This will involve conducting business through a variety of banking institutions and will often require the submission of additional financial documents. The results of those efforts may well place business owners in a better position financially if those efforts produce the results they need.
When business owners are seeking a business loan no personal guarantee, they should be absolutely certain of their ability to repay that loan. By law, the lender is required to provide a good faith estimate of the business's chances of meeting its obligations. This estimate . . . . . . must be supported by solid projections and realistic assumptions about the amount of debt, if any, that the business may be exposed to in the future. Even the best-case scenario may not be realistic enough for some business owners. They should use caution when applying for business loans with no personal guarantee.