Credit Without a Personal Guarantee

As a business owner, your first goal should be to put your business in a position where it does not rely on your personal guarantee to qualify for credit.  Your personal guarantee is the right that you sign when applying for a loan or credit card for personal use.  If you are using your personal finances to fund your business expenses, you are putting your personal guarantee on these debts.  This means that if your business should end up going bankrupt, you would be held legally responsible for all debts your business holds, which could ruin your personal financial situation.

In order to qualify for financing without the need to use your personal guarantee, you must make your business a separate entity from you, at least financially speaking.  To do this, start by forming either a corporation or an LLC.  It does not matter how large or small your business is, if you file the correct paperwork, you can turn it into a corporation or LLC.

The next step is to apply for an Employer ID Number, or EIN.  The EIN works for your business like your Social Security number does for you personally.  It is a way for potential lenders to identify your business as an individual entity, without tying the debt back to you personally.  In any situation when you would give your Social Security number for identification purposes, you can instead give your business’s EIN to identify your business.

Once you have established a corporation and applied for an EIN, you can then set up a business bank account.  This is another crucial step to opening your business up to applying for business credit without a personal guarantee.  Be sure that the business bank account is set up with the name of your business as it appears on the corporation paperwork.

That is the structure you need in order to eliminate your personal guarantee from the credit situation.  However, you may find it difficult even with the structure in place to apply for credit.  This happens because your business has no credit history.  You will need to establish some credit history in order to qualify for loans.

To do so, find out if your venders will be willing to open a small line of credit for your business.  Make sure that the venders who say yes are ones that will report your repayment history to the credit bureaus.  If not, these lines of credit will not help your credit score.  Try to line up at leas five accounts like this.

Next, check with the three business credit bureaus, EquiFax, Dun & Bradstreet, and Experian, to make sure that your business is listed. Also, apply for about three credit cards that are for your business alone and do not require a personal guarantee. Again, make sure that the credit cards will report your repayment history to the credit reporting agencies. Once you have these structures in place, you will be on the road towards building a business credit history that will allow you to apply for loans without the need for your personal guarantee.