Business loans without personal guarantee or security

A business loan or a business credit does not really require any form of security or pledge. However, it is something that almost all lenders require in order to issue a credit, especially when it comes to small and medium-sized companies. There are a number of different types of guarantees, but in this post we will only go through personal guarantees. So that you can understand what unsecured business loans are all about.

Personal guarantee for business loans

When you give a personal guarantee for a loan, it means that you are vouching for the company. You simply take it upon yourself to pay if the company is unable to repay the business loan. This is called personal liability and means that the creditor, i.e. the lender, can be sure of getting its money back even if the company goes bankrupt. In other words, unsecured business loans are quite rare.

Requirements for guarantors for business loans

Common requirements for guarantors are:

• The person must be a Swedish citizen
• Have an orderly economy
• Free from payment defaults
• No debt balance

The lender will check the person who has been named as a personal guarantor and although some people will tolerate a payment history, few will accept a personal guarantor with a debt balance. It is therefore important that both you, the guarantor, and possibly the person acting for your company are aware of your financial situation. Both the personal and the company's finances.

The advantage of personal guarantee

A major advantage of using a personal guarantee for a business loan is that you can get better terms, either linked to the amount of the loan, the cost or the duration. If you are applying for a larger business loan or want to get even better terms, you can get several people to act as personal guarantors. This spreads the risk for the lender.

The disadvantage of personal guarantee

It is simply that you, as a private individual, vouch for the loan and the company's ability to pay. Your personal finances may be adversely affected if your company has difficulty repaying loans, invoices and debts. Think about whether this is something you can do and whether you should sign an agreement with any partners or associates.

The most common type of guarantee

When it comes to business loans, the most common type of relationship is a mortgage. This type is the only one where multiple guarantors are allowed. What may seem tough is that the lender can choose to call on anyone they want for the debt. In other words, they don't have to take any account, other than a moral one, of the financial situations of the different people.

Single guarantee is the most common guarantee for small business loans

If you and your company are taking out a small business loan, some lenders will accept a simple guarantee as security. The process for a simple guarantee is that the lender must submit the debt to the Enforcement Agency to allow them to investigate the company's ability to repay the loan. If the bailiff does not think that the company can repay the debt in money, property or anything else, then the lender can ask the guarantor to repay part or all of the debt.

So unsecured business loans are very rare. Banks and lenders often require some form of collateral. Contact us if you are unsure what this means for your particular business in the case of a business loan.