It Never Hurts to Ask
You may have heard that everything is negotiable. Keep this in mind when you can’t find business credit without personal guarantees. You may have to sign off personally, but perhaps you can reduce your risk. Ask if they’ll work with you on any of the terms - interest rates, due dates, and other requirements may be more flexible with your personal assets on the line.
Assets at Risk
Try to limit assets available to the lender in case you default. While they may ask for your spouse’s guarantee, you might be able to keep spousal assets out of the picture (or it may be worth offering to pay a higher interest rate to reduce your risk). If you have significant investment assets, you may offer to pledge them while keeping the family home off limits.
If your business gets credit without a personal guarantee from your spouse, find ways to maximize protection. Work with an attorney and review how your assets are titled. You may be able to manage risk by transferring ownership, but be sure not to break the loan agreement in the process.
New Partners
If you add or change partners, should they share the risk? You weren’t able to get business credit without personal guarantees, but new partners haven’t risked anything. They’ll benefit from your risk without having any skin in the game. Consider whether or not they should also guarantee the loan, and investigate tax and legal consequences of any arrangement.
Build Credit
There’s a reason you couldn’t get business credit without personal guarantees. As you grow, things change. Start building business credit as soon as possible. If you accumulate assets that can be used as collateral, see if you can remove the personal guarantee by pledging business assets instead.
Eyes Wide Open
If you’re required to personally guarantee a loan, know what you’re getting into. Ask questions or work with an attorney to review the loan agreement if there’s anything you don’t understand. Time and money you spend managing your risk may pay off in the future.
Alternatives
If you don’t like the idea of putting personal assets at risk, you might try something else. Unsecured loans, such as peer to peer loans may make you more comfortable. Your credit may suffer if you default, but you can avoid pledging specific assets.
