Financing without personal credit or collateral?

Just Starting Out?

Did you start a business recently? Are you wondering if there is a way to get the financing that you need for your small business or startup without putting your personal credit on the line? Straight up, It’s going to be hard as any traditional business credit is based on the personal credit of the business owner.

Any bank or credit card company that provides you with a loan or credit will want to be paid back. Since there’s no guarantee that you’ll pay lenders back, in order to be 100% certain that you do payback, the lenders require a personal guarantee from you. This is to ensure that you don’t just walk away from the business if it were to fail. For this reason, most small business owners have no choice but to risk their personal credit when applying for a loan for their business.

Financing Options

A common occurrence we run into is: What if you don’t want to risk your personal credit? Will your loan application be even considered then?

Well, you’ll have to consider different types of financing. Many times traditional lending options are out of the question unless you have established business credit. Depending on the amount that you’re looking for, you may be able to depend on your friends and family. If there is a family member willing to lend money to your business without asking you to pledge your personal guarantee.

Now, They might ask you to sign a legal agreement to ensure that there is no confusion over what you owe them later.  In case you don’t pay the loan back, they could file a lawsuit against you in a small claims court. However, this method you’re able to bypass a lot of the requirements from traditional lenders.

It is very important not to allow things to get so bad that you end up defaulting on the loan. If you’re not absolutely certain about the business succeeding and in your ability to pay the loan back in them, then it’s better not to ask your family or friends for a loan.

One more option available to you is to finance the business entirely from the cash flow that you get from it. How can you do this? You could ask your customers to pay you well in advance. You can’t do this in all industries, but if you have a professional services business, it is certainly possible to ask your customers for payments or deposits in advance. If you can have sufficient cash flow from the business, you won’t need to depend on credit. If you’re a retail business owner, then you can consider signing up your customers for an automatic shipment plan to get your cash flow up.

If you have a tech startup or are in the process of developing an innovative new product, then you could take the crowdfunding route to raise money. Consider starting a crowdfunding campaign on Indiegogo or Kickstarter, for example.


Building Business Credit

Regardless of which approach you take, you should at some point look to build business credit through conventional means. You could apply for a business credit card, for example, even if that requires a personal guarantee. The benefits of establishing business credit just can’t be ignored.

You shouldn’t find it difficult to get a business credit card and business a proper credit profile for your small business or startup once you are able to establish a solid business that has a track record of paying bills on time.

You could even apply for a bank loan once you’re able to establish a consistent track record of making your credit card payments on time. That will give a boost to your credit score for one. Banks check your track record, your credit score and the robustness of your business model. If that makes sense to them, they are happy to provide you with a business loan.