Avoiding Personal Guarantees for Business Owners

One purpose for establishing business credit is to obtain credit lines without providing a personal guarantee (PG) and not having a personal credit check. Many vendor accounts can be obtained via EIN only with no personal credit checks or personal guarantees that can help your cash flow. The more of these you can obtain the better it will be for your business. All business owners should be doing this. NET 30 and revolving accounts help with cash flow.

But it’s a fallacy to think every credit line you ever obtain will require no personal credit check or personal guarantee.

From a lender’s perspective, why would anyone give you thousands if not hundreds of thousands of dollars with no guarantee of repayment? That is not a good business model. Lenders aren't in business to make our dreams come true. They loan money with interest to make more money than lend it out again. That is their business model. Money is their product. Lenders will share in the risk of loaning money to you but they won't take on 100% of the risk.

If you are not willing to take a chance on you and your business, why should anyone else?

For most of us, your personal credit is going to be looked at and you WILL provide a personal guarantee as the business owner. But if you do things the right way, you WILL obtain those cash credit lines attached to your entity and it's EIN#. The credit lines WILL NOT show up on your personal credit reports. When you use these credit lines, they WILL NOT affect your personal credit. That is a huge advantage.

I tell all my clients don’t be afraid of providing a personal guarantee (PG). By all means try to limit the number of times you provide a personal guarantee, but don’t be afraid to provide it.

If the capital you can acquire by providing the lenders required personal guarantee moves your business forward, why wouldn’t you provide it? Just be sure it will not show up on your personal credit report, and only report to the business credit bureaus.

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Avoiding Personal Guarantees for Business Owners