Small business owners are constantly navigating a delicate balance. They need funding to grow, but they’re increasingly wary of putting their personal assets on the line.

While new financing options are emerging, personal guarantees in small business loans remain common. Lenders still look for added layers of assurance, particularly when lending to younger or higher-risk businesses. But there are circumstances where business loans with no personal guarantee are possible.

What Is a Personal Guarantee?

A personal guarantee is a legal agreement where an individual commits to repaying the business loan if the company cannot. This agreement often gives the lender the right to pursue personal assets if the loan defaults.

For lenders, this is a risk-mitigation tool. For borrowers, it’s a high-stakes commitment. Still, in many traditional lending arrangements, it’s a must for lenders.

Why Are Personal Guarantees Common in Small Business Loans?

Despite advancements in data-driven underwriting and access to alternative capital, personal guarantees in small business loans remain a go-to safety net for lenders, especially for:

· Startups or early-stage businesses without a credit track record

· Companies seeking unsecured financing

· Firms in volatile industries like restaurants, construction, or retail

Lenders want the confidence that someone besides the business itself has the incentive (and financial capability) to repay the loan in case of a default. A personal guarantee aligns the borrower’s responsibility with the lender’s risk exposure.

When Do Lenders Require a Guarantor?

Not every loan requires a guarantor. In most cases, the decision depends on the business’s financial strength and creditworthiness. Lenders tend to ask for a guarantor when:

· The business has a limited operating history

· Revenue is inconsistent or unproven

· There’s no collateral offered

· The credit profile of the business is poor or thin

· The loan amount is substantial relative to the company’s income

What Lenders Look for in a Guarantor in 2025

The standards lenders apply to guarantors have become more sophisticated, relying on comprehensive credit screening tools and fraud prevention measures. Here’s what lenders typically expect from guarantors:

Strong Personal Credit History

A solid credit score, history of timely payments, and a low debt-to-income ratio are all favorable. Lenders also consider recent credit inquiries, bankruptcies, or judgments.

Verified Income and Assets

Guarantors need to show they have enough income or liquid assets to cover the loan amount if needed. This might include bank statements, tax returns, or proof of real estate ownership.

Identity and Legal Validation

To reduce fraud risk, lenders perform background checks to ensure the guarantor is who they claim to be—and that they’re legally able to assume the obligation.

Relationship to the Business

Guarantors are often business owners or key stakeholders, but not always. Lenders assess the guarantor’s influence within the company and the likelihood of their long-term involvement.

Are Business Loans with No Personal Guarantee Still Possible?

Yes, but they’re harder to secure and typically reserved for well-qualified borrowers. Business loans with no personal guarantee are more likely when:

· The business has strong, consistent revenue

· Credit history is well-established and stable

· There is sufficient collateral (e.g., real estate or equipment)

· The borrower has a history of successful loan repayment

· The lender offers non-traditional funding, such as revenue-based financing or factoring

Even with these factors, no-guarantee loans may come with higher interest rates, shorter terms, or stricter repayment conditions. Lenders see more risk, so they build protections into the loan structure itself.

How to Avoid a Personal Guarantee

If your goal is to obtain business loans with no personal guarantee, preparation is key. Here are steps you can take to strengthen your loan application and reduce the lender’s perceived risk:

Build Business Credit

Check your business credit report and see how lenders will view your credit history. If there are discrepancies, get them fixed before you apply for credit. If there are shortfalls, take proactive steps to improve your credit score.

Offer Collateral

If you can’t provide a personal guarantee, offering physical or financial assets can help offset risk. Common options include vehicles, property, or inventory.

Strengthen Your Financials

Show lenders that your business is healthy. Clean and well-prepared financial statements, especially profit and loss statements and cash flow reports can go a long way in proving creditworthiness.

Explore Other Funding Options

Some SBA loan programs and FinTech platforms may offer loans without personal guarantees, particularly if you meet certain criteria. Always read the fine print to understand the full risk and cost structure.

Before you apply for a loan, check your business credit score with Command Credit. You can pull on-demand reports and download them instantly without signing up for a long-term subscription.