Lending Library

Starting a small business is expensive. Almost every small business owner faces startup expenses, whether you’re a solopreneur needing a laptop or a construction company purchasing a lot full of heavy machinery. Inventory and equipment must be bought, employees or contractors must be paid, and rent comes due every month.

What’s harder, outside funding is often difficult to access when your company is young, but in need of capital. Startup business loans are a great way to bridge this funding gap—and even if you have a suboptimal credit score, there are forms of financing you can probably still access.

Best startup business loans for bad credit with easy approval.

The following list highlights lenders from our selection of best business loans that offer minimum credit requirements of 650 or below and a minimum time in business requirement of six months or less.

Small business loan options for startups with bad credit.

If you’re starting a business with a lower credit score, there are several loan routes you can take. 

Service providers

As embedded financing unlocks new ways for business service providers and platforms to service their customers, financing options are now available in places you already frequent. From accounting software to e-commerce platforms, many tools you already use to run your business may offer access to capital directly within their interface—often with faster approvals and tailored options based on your business data.

SBA loans

While the SBA 7(a) and SBA 504 loan programs were created for established businesses, the SBA does offer two startup loans.

1. Microloans

The Small Business Administration's (SBA) microloan program is designed specifically to assist small businesses, start-ups, and nonprofit child care centers. This program offers loans up to $50,000, with the average loan being around $13,000. The funds can be used for various purposes including working capital, inventory, supplies, and machinery or equipment. However, microloans cannot be used to pay off existing debts or purchase real estate.

To qualify for an SBA Microloan, the borrower must meet certain criteria:

• Credit history - The borrower's credit history is reviewed. While there isn't a minimum credit score requirement, a good credit history can improve the chances of approval.
• Collateral - Depending on the loan amount, the borrower may have to provide collateral to secure the loan.

Remember, the SBA doesn’t provide the loan itself, but instead, it works with approved intermediary lenders to offer these loans.

2. Community Advantage 7(a) Loans

The Community Advantage (CA) program (now under the SBA 7(a) program) is another offering by the SBA, aimed at promoting economic growth in underserved markets. Community Advantage Small Business Lending Companies (SBLCs) can provide up to $350,000 in funding. These funds can be used for a range of business activities, including startup costs, expansion of an existing business, and working capital.

To qualify for a Community Advantage loan, certain criteria must be met:

• Credit history - Similar to the SBA Microloan, the borrower's credit history is assessed. While no specific minimum credit score is set, borrowers with a good credit history typically have a higher chance of approval.
• Collateral - Depending on the loan amount, collateral might be required to secure the loan. The specifics regarding collateral are determined on a case-by-case basis.
• Location - The business must be located in an approved underserved market. These included businesses located in Low-to-Moderate Income communities, Empowerment Zones and Enterprise Communities, Historically Underutilized Business Zones, Promise Zones, Opportunity Zones, and rural areas. Additionally, each lender is authorized to work within a certain state or group of states.
• Demographics: Underserved markets also include newer businesses in operation for less than two years, businesses that are at least 51% owned by veterans, or businesses with at least 50% low-income workers.

Remember, as with the SBA Microloan program, the SBA does not provide the loan directly. Instead, it works with approved SBLCs to provide Community Advantage loans.

Online lenders

In the realm of bad credit business loans, online lenders often emerge as a viable option for startups. These lenders provide a variety of financing options, many of which are designed with lenient credit requirements, specifically catering to business owners with bad credit. While online lenders also offer SBA loans and term loans with more stringent credit requirements, they also offer alternative forms of financing.

Business Lines of Credit

Many online lenders provide business lines of credit that allow businesses to draw funds up to a maximum limit as needed. Similar to a credit card, you only pay interest on the amount you use, making it a flexible financing option.

Invoice Financing

Online lenders often offer invoice financing, allowing businesses to borrow against their outstanding invoices. This can provide immediate cash flow while waiting for customers to pay.

Revenue-based financing

A revenue-based financing, sometimes called a business or merchant cash advance, is an upfront sum of cash in exchange for a slice of future sales. This can be a beneficial option for businesses with strong sales but poor credit.

Equipment Financing

Equipment financing is offered in the form of a term loan or equipment lease for the purchase of qualified equipment. Since the equipment serves as partial collateral for the loan, equipment funders often have less stringent credit score requirements.

CDFIs

Community Development Financial Institutions, or CDFIs, are private financial entities that are primarily dedicated to delivering responsible, affordable lending to aid low-income, low-wealth, and other disadvantaged communities. CDFIs play a significant role in generating economic growth and opportunity in some of the nation's most distressed communities. They can offer an array of financial products and services, including business loans, to help underserved communities join the economic mainstream.

CDFIs are found across the United States, and you can locate one near you by visiting the CDFI Fund's Award Database. This database provides information about CDFIs that have received financial awards or recognition from the U.S. Department of the Treasury.

In terms of requirements to work with CDFIs to get a business loan, it varies across different institutions. However, typical requirements may include a business plan, financial projections, personal and business credit history, and collateral. Some CDFIs may also require that the business operates in a specific geographic area or serves a particular community. It's recommended to directly contact a CDFI for their specific lending criteria and application process.

How to get a startup business loan with bad credit.

Navigating the world of business financing with poor credit can seem daunting, but it's far from impossible. Let's dive into the steps to get your startup funded, even if your credit score isn't quite up to par.

1. Evaluate your needs - The first step to obtaining a startup business loan is to evaluate your business needs. Understand how much money you need and what you will use it for. This clarity will help you determine the type of loan appropriate for your business.

2. Research your options - Research various loan options available for startups. Each type of loan has its own eligibility criteria and terms, including minimum credit score requirements. Compare those requirements to your current credit score to see if you may qualify.

3. Prepare your business plan - Lenders generally require a comprehensive business plan. This should include an overview of your business, details about your products or services, market analysis, organizational structure, and financial projections.

4. Gather required documentation - Gather all required documents such as financial statements, tax returns, and legal documents. The specific documents required will vary by lender, so make sure to check with them directly.

5. Apply for the loan - Once you have all the necessary documents and a complete business plan, apply for the loan. This process varies depending on the lender. It could be online or in-person.

Alternate forms of financing

In addition to a small business loan, there are alternate forms of financing that can be explored if you have a lower credit score.

Crowdfunding

Crowdfunding platforms like Kickstarter or Indiegogo allow you to raise capital through small contributions from a large number of people. This form of financing is often used by startups looking to launch new products or services, and it also offers an opportunity to validate your business idea in the market.

Venture capital

Venture capitalists invest in startups with high growth potential in exchange for equity in the company. These investments are high-risk but can provide substantial funds for your business, with the bonus of gaining experienced partners who can offer strategic advice.

Grants

Business grants are sums of money awarded by government departments, foundations, trusts, and corporations to help businesses get started or grow. The great advantage of a grant is that it doesn't need to be repaid. On the downside, competition can be intense, and the application process can be time-consuming.

Business credit cards

You will need a credit score of at least 650 to qualify for a business credit card, but if you meet that minimum requirement, a business credit card is a great way to bolster your credit even further while covering smaller, short-term expenses.

Personal loan

In some circumstances, you may qualify for a personal loan with a poor credit score. While this may not be the most ideal option, it could provide you with the funds you need to get your business off the ground. Just make sure to carefully consider the terms and interest rates before making a decision.

Are you an active-duty service member, National Guard member, Reservist, or the spouse or surviving spouse of one? Do you also want to start or grow a small business? You may qualify for the Veteran’s Advantage Program, a specialized program for SBA loans offered by the U.S. Small Business Administration (SBA). This SBA program is designed to reduce obstacles for veteran entrepreneurs and help them access affordable, secure funding.

The SBA has committed to improving the application experience, but you still need to do some things to qualify. Here’s what you should know about the process, the benefits offered by the program, and what to expect when approved.

What SBA loans are available through the SBA Veterans Advantage Program?

The SBA offers two types of financing to qualifying applicants under the SBA Veterans Advantage Program— SBA 7(a) loans, and SBA Express loans. 

SBA 7(a) loans are general purpose loans that can be used for many business needs, including working capital, real estate, and equipment. Read our guide to the SBA 7(a) program for specifics.

SBA Express loan is a smaller loan with faster approval time, and can be used for working capital and other immediate business needs. Read our guide to the SBA Express loan for maximum dollar amounts, use of proceeds, and more.

It’s important to note that there isn’t a specific veterans loan under the SBA program. Rather, prioritization and benefits are given to qualifying applicants on the existing SBA loan programs mentioned above.

Requirements for the SBA Veterans Advantage Program.

Beyond the general eligibility requirements that applicants must meet to qualify for an SBA loan, to qualify for the benefits of the Veterans Advantage Program, applicants are at least 51% owned by military members, veterans, or surviving spouses. This means they serve people who may not have success through other loan programs.

Here’s how the SBA defines an eligible veteran:

• A person who served in the active military, naval, or air service (United States Army, Navy, Marine Corps, Air Force, and Coast Guard, or reserves for any).
• Was discharged or released under conditions other than dishonorable. This includes retirement, and/or satisfactory completion of the period of active service for which the person was obligated at the time of entry.
• If a person, due to enlistment or reenlistment, was not awarded a discharge or release from the period of service at the time of completion, would have been eligible for the award of a discharge or release other than dishonorable.

Also eligible are:

• Service-disabled veterans
• Active duty military service member participating in the Transition Assistance Program (TAP)
• Spouse of a veteran, Active Duty service member, or widowed spouse of a service member who died while in service, or of a service-connected disability.

Core benefits of the SBA Veterans Advantage Program.

The core benefits of the Veterans Advantage program on SBA loans is lower costs. While SBA 7(a) loans are subject to guarantee fees, qualifying veterans, widows, or spouses enjoy waived guarantee fees on 7(a) loans under $150,000, and a smaller percentage on upfront guarantee fees for higher amounts compared to regular small business applicants.

The SBA also makes every effort to give special consideration to veterans in its loan programs. 

“SBA will prioritize processing applications from businesses that are owned by veterans when those loans are processed by SBA under non-delegated procedures. For loans processed under delegated procedures, SBA encourages Lenders to give special consideration to veterans during application processing.” - SBA SOP 50.10.8

Veterans also have the option to apply for an SBA Express loan, granting faster approval, no upfront fee, and potentially no collateral for smaller amounts. Like other SBA 7(a) loans, the Veterans Advantage loan program grants amounts of up to $5 million with repayment terms of up to 25 years (for real estate) and up to ten years for other uses.

Considering that these loan rates are very competitive compared to non-SBA loans, the program may be an excellent way for veterans to level up their businesses without incurring expensive interest costs.

Why lenders value veteran borrowers.

Veteran applicants may seem appealing for many reasons, in addition to any low financial risk or proven experience they may bring to the table. This group can be seen as having strong leadership backgrounds and a mission-driven mindset, which can lead to a disciplined financial approach, especially when running their businesses.

Well-documented military experience can help a loan application stand out and add context to the section that explains how the money will be used. That’s why it’s especially important to offer service history from the very beginning of the lender relationship.

How to prepare your application.

Knowing the SBA application process in advance gives you the chance to come fully prepared with all the information needed to complete forms quickly. Steps to take include:

1. Gather service documentation.

This includes the DD214 (Certificate of Release or Discharge from Active Duty) or equivalent. If you are still in service, provide a Statement of Service or other relevant proof. Spouses may want to ask the lender or SBA center for the exact qualification requirements.

2. Organize your supporting business documents.

These generally include:

• Three years of personal and business tax returns, profit and loss statements, balance sheets, and cash flow projections
• Copies of business licenses, registrations, and legal documents such as articles of incorporation or property leases
• A comprehensive business plan that shows market analysis, revenue projections, overall operational strategy, and how you’ll use the loan money

Not only do these documents meet the requirements of the loan application, but they also show your readiness to partner with the lender. For some business owners, it’s also a wise strategy to get last-minute updates on the health of the business and how the loan funds can be spent wisely.

3. Check your personal and business credit scores.

Then, do what you can to clean them up. If you see any errors, have them corrected by contacting the credit reporting bureau or using their online dispute resolution form. Lenders naturally prefer higher scores, so consider paying down any debt you can or resolving any outstanding collections before you apply. Begin the process a few months ahead of meeting with a lender.

How these steps secure an SBA loan under the Veterans Advantage Program.

Each part of the process helps demonstrate your eligibility for the loan you’re applying for. For example, showing your service paperwork or discharge orders lets the lender know you have service member or veteran status, one of the most important parts of qualifying for this specific SBA loan program.

Having your documentation updated, organized, and in a format that’s easy for the lender to accept and review ensures they don’t have to ask for it again. It also demonstrates your ability to follow procedures and adhere to lender follow-ups after the loan has been paid to you.

With an eye on your credit, you won’t be surprised going into the application. It’s unlikely that you’ll waste time and energy collecting all the vital info just to learn that you fall far below what’s required for a loan approval. Remember, healthy credit scores reduce underwriting risk for the lenders, and they’ll be more likely to say, “yes” when the time comes!

How to use veterans' small business financing.

The SBA lays out rules for how the money can and can’t be used. The most common approved uses include:

• Starting a business or purchasing a franchise
• Expanding an existing business to new locations or through new product lines
• Using it as working capital to pay vendors, maintain payroll, and hire new employees
• Refinance high-interest loans so you can save money on interest each month

The SBA loan funds can be flexible, but you should still be very clear in your application on how you’ll use them. Lenders want to see that you have plans for the money, as it means you’ve considered it carefully and understand the best ways to grow your unique business.

Find the right SBA loan for you.

There are many lenders out there ready to partner with veterans for business expansion and economic growth. Could one be the right option for you? While these loans level the playing field for service-connected entrepreneurs, it can still take some time to complete the process. Apply through Lendio to find the right fit, and explore your funding options well in advance of your need.

Are you a small business owner looking to buy new equipment? If so, then you may already know that purchasing equipment can be a costly endeavor. Fortunately, the Small Business Administration (SBA) offers SBA loan programs specifically designed to help small businesses purchase necessary equipment. 

In this blog post, we’ll discuss the programs available for equipment lease or purchase, basic eligibility requirements, and key differences between the loan programs to keep in mind. We’ll also discuss what repayment of these loans looks like, and where to find an SBA lender—including in the Lendio Marketplace!

What qualifies as equipment when it comes to SBA loans?

If you’re considering pursuing SBA financing to purchase or lease equipment for your business, it’s helpful to know what type of assets qualify under SBA guidelines. Typically, the SBA considers a broad range of tangible assets as machinery or equipment, particularly if they’re important for operations or efficiency.  Some examples include:

• Operational equipment - Machinery and equipment such as manufacturing equipment, construction tools, commercial ovens, or medical devices.
• Vehicles - Delivery trucks, company vans, and specialty vehicles are eligible, provided that they are used primarily for business purposes and increase operational efficiency.
• Technology - Technology infrastructure, such as computers, servers, point-of-sale systems, and software. This also includes AI-related expenses.

In order to qualify, the equipment or machinery financed must be durable, have a useful life greater than one year, and serve a defined business function. If you’re looking into SBA financing for equipment, it’s best to have a list with descriptions of the assets you want to finance or lease, to help with clarity during the application process.

Understanding SBA equipment loans: the role of 7(a) and 504 programs.

When researching SBA loans options for equipment, most opportunities will come from either the 7(a) or 504 loan programs.

SBA 7(a) loans for equipment

The SBA 7(a) loan program is the most popular SBA loan and can be used for a variety of business purposes, including acquiring and installing purchased or leased equipment.

• Maximum loan amounts: $5 million.
• Repayment terms: 10-25 years.
• Interest rates: 3-8% above base rate.

The SBA 7(a) loan program also includes the SBA Express Loan option. This subset of the program offers expedited loan approval and funding, typically within 36 hours of application submission. While the maximum loan amount is lower, capped at $500,000, the accelerated timeline can be especially beneficial for small businesses requiring immediate access to funds for equipment purchase.

SBA 504 loans for equipment.

The SBA 504 loan program is specifically designed for fixed asset financing, such as real estate, buildings, or long-term equipment purchases. 

• Maximum loan amounts: $5.5 million.
• Repayment terms: 10-25 years.
• Interest rates: typically 3% of the loan amount. 

Using 504 loan proceeds for equipment financing comes with more stringent requirements than a 7(a) loan. In order to be eligible, the asset:

• Must have a useful life of at least 10 years.
• Be at a fixed location.

In some cases, short-term financing for equipment, furniture, and furnishings is allowed where essential, and if it’s a minor portion of a 504 project.

Comparing eligibility requirements for 7(a) and 504 loans.

In order to qualify for an SBA loan, you must meet certain eligibility requirements. It might be helpful to review our complete guide to eligibility requirements for SBA loans both generally and for specific programs.

Some general eligibility requirements for both programs are:

• A for-profit business operating in the United States or its territories.
• The business must be small according to SBA size requirements
• The business cannot be an ineligible business
• Business owners must have 100% direct or indirect owners and guarantors who are U.S. citizens, U.S. nationals, lawful permanent residents, or other eligible persons.
• The business must have sought and used other financial resources, including personal assets, before applying for an SBA loan.
• The business has no owners incarcerated, on parole, or probation. Some criminal history may also prevent qualifying.
• The business must also be current on any existing government debt obligations, and can’t have defaulted on any federal debt that resulted in a loss to the government.

Both 7(a) and 504 programs have specific eligibility requirements on top of general requirements regarding uses, equity injection, economic development objectives, and net worth and income limits. These are also covered in our guide to SBA loan eligibility requirements.

How repayment works: Amortization and loan terms.

Repayment for SBA equipment loans is structured to support the day-to-day realities of small business cash flow. Both SBA 7(a) and 504 loans use amortization schedules, which break your payment into predictable monthly installments over a set term.

For 7(a) loans used to purchase equipment, the term of the loan is usually 10 years, or 15 if the useful life estimate supports this term. More involved machinery, such as farm machinery is 15 years, plus one year for installation.

For 504 loans used to purchase machinery or equipment, the minimum term of the loan is 10 years, but depending on the specific asset being financed, could be 20-25 years.

With these set terms, you’ll pay down the loan’s principal and interest gradually over the life of the loan with predictable monthly payments calculated from interest rates, term, and principal amount.

504 loans generally come with fixed interest rates, giving borrowers stable monthly payments and long-term predictability for budgeting. 7(a) loans may offer fixed or variable interest rates. Variable rates can adjust with market conditions, which is helpful if rates decrease, but potentially more expensive if they rise. If you plan to choose a variable rate, make sure you plan ahead to absorb any payment fluctuations with your monthly payment. Check our guide to see the most current SBA interest rates.

If you’d like to estimate your monthly payments and amortization schedule, visit our SBA loan calculator to get an estimate of what your monthly payments could look like.

Where to get an SBA loan to buy equipment.

SBA loans are not directly provided by the government. Instead, they are administered through partnering banks and financial institutions. This means that you can apply for an SBA loan at any bank or credit union that participates in the program.

It’s important to note that the application process for an SBA loan may be more involved compared to traditional loans. Your SBA lender will require detailed financial information and may also ask for a business plan, personal credit score, and collateral. However, with the right documentation and a solid business plan, you can increase your chances of getting approved for an SBA equipment loan.

The first step is to research and find SBA participating lenders in your area. You can also use the SBA website to search for lenders based on your location and preferred loan program. Once you’ve identified potential lenders, it’s important to compare their rates, terms, and requirements before deciding on the best option for your business.

Lendio is proud to partner with multiple SBA lenders. If you’re interested in starting your SBA journey, fill out our application to compare financing offers from multiple lenders in our network, including SBA lenders, to finance your equipment.

Accessing the right funding for your business with a shaky credit score isn’t always easy—especially if you’re interested in a business line of credit. But it’s not an impossible task either. Plenty of successful business owners start out with bad credit and still manage to qualify for financing options (business credit lines included) that help their companies grow, solve cash flow problems, and create momentum to move forward. 

The trick is to understand how lenders view risk and show them a full picture of your company’s strength (not just your credit score). Of course, credit history and credit scores matter. But lenders consider other details, too. Lenders weigh factors like your company’s annual revenue, cash flow, and time in business before deciding whether to approve your application. So, you may still be able to secure funding if you know how to position your business, document its performance, and choose the right lender and financing solution.

In this guide, learn how to get a business line of credit for bad credit and what to expect from lenders in the process. You’ll also find tips on how to strengthen your application before you apply, how to compare financing options, and how to build and manage good business credit after you open a new business credit line.

What “bad credit” means for your business.

Lenders usually define “bad credit” using your personal credit score, especially for small businesses and startups that lack well-established business credit history. FICO® Scores below 580 typically fall into the poor credit range, while most lenders consider scores between 580-669 to be fair. Any score below 600 may cause traditional banks to hesitate. But some alternative and online lenders might still approve funding if your cash flow is strong.

5 steps to get a business line of credit with bad credit.

In ideal circumstances, it’s wise to improve your credit before you apply for financing. But if you’re searching for a new business line of credit with bad credit, the following steps may help.

1. Review your credit.

Before you apply for a new business credit line (or any other small business loan), find out where your credit stands. Although no-credit-check loans exist, they’re rare. Most lenders will review your credit when you apply for a new business line of credit or business loan. So, check your credit first to avoid surprises. 

Consider reviewing all three of your personal credit reports and scores from Equifax, TransUnion, and Experian. Checking your business credit reports and scores (if you have established business credit) can be smart, too. Understand your credit score range and how it might impact your financing options. Also, look over your credit reports for any potential errors. Remember, if you discover incorrect information on a credit report, you can dispute those items with the appropriate credit reporting agency.

2. Find the right lender.

Traditional banks often cater to borrowers with higher credit scores, more time in business, and those seeking larger loan amounts. But if you have fair or bad credit (e.g., a FICO Score under 600), you’ll often have more success with online lenders or fintech companies that use revenue-based underwriting. 

After checking your credit, review the minimum requirements for a business line of credit of different lenders to help narrow down your choices. Although the credit score a lender accesses may not be identical to the one you check yourself online, it can still be a useful tool during the initial loan shopping process.

3. Prove financial stability.

Even with bad credit, steady cash flow could strengthen your financing application. Gather the last six months of business bank statements, merchant processor reports, and accounts receivable summaries. When lenders see that your business consistently generates enough income to handle its repayment terms, they may be more comfortable lending your company money. 

4. Borrow strategically.

Applying for large amounts of business capital can be tricky. Yet if you seek a realistic credit limit to meet your company’s financial goals, it could increase your approval odds.

You can use Lendio’s business line of credit calculator to estimate the amount of money your company can afford to comfortably borrow and repay. The online tool can also help you estimate monthly payment amounts and predict the credit limit your business might be eligible for on a new credit line. 

5. Consider secured financing.

If your credit score is low, applying for a secured business line of credit might be worth considering. With this option, you back your company’s credit line with collateral such as inventory, equipment, or real estate. When you pledge collateral, there’s less risk for the lender, and your chances of qualifying may improve along with the pricing and terms of your offer.

Typical credit score minimums and lender expectations.

Many online lenders accept personal credit scores as low as 600, and some may work with applicants who have scores as low as 550. Traditional banks, by comparison, sometimes require minimum FICO Scores as high as 700 and at least two years in business.

On a positive note, the Federal Reserve’s Small Business Credit Survey showed that companies with medium or high credit risk still saw approval rates around 50% for loans and lines of credit (even with less-than-perfect credit scores). So, it’s important to remember that credit isn’t the only determining factor lenders consider when you apply for business financing. 

Strong cash flow, proper documentation, and realistic borrowing terms could improve your chances of approval. When you do a good job presenting your company’s performance, show an ability to repay, and match your credit limit request to your actual business needs, you’re more likely to join the half of applicants who are successful despite credit score weakness. 

Navigating minimum credit score requirements and alternatives.

It’s true that borrowing money for your business tends to be more difficult when you have bad credit. However, there’s no such thing as a universal minimum credit score when it comes to qualifying for a business line of credit. Credit score cutoffs vary by lender and can change over time. If you’re looking for guidance, below are some general guidelines that may make it easier to shop for funding options.

Some lenders may also weigh factors like your annual revenue, time in business, profit margins, and payment history as heavily (or sometimes more heavily) than your actual credit score.

Line of credit financing options for bad credit.

A business line of credit can be one of the most flexible financing tools available to small business owners. But if you’re dealing with bad credit, you may need to get creative when it comes to exploring funding sources. On a positive note, some lenders work with borrowers who have less-than-perfect credit and use factors like cash flow, annual revenue, and more (not just credit scores) to make approval decisions.

Lenders open to bad-credit borrowers.

While approval criteria can vary, several online lenders in the Lendio marketplace work with entrepreneurs who are rebuilding their credit. The following options highlight a mix of business lines of credit that might work for borrowers with bad credit, fair credit, along with different business profiles and funding needs.

Alternative financing solutions.

If a revolving credit line isn’t the right fit for your business, there are other funding options you can also consider. Even with bad credit, some of the solutions below might help your business bridge short-term capital gaps or fund upcoming projects while you work to establish or rebuild better credit over time.

• Short-term lines of credit: This type of business credit line typically features a smaller credit limit and shorter repayment terms. Interest rates also tend to be higher, but the approval process can be easier as well—a potential relief if you’re struggling with credit challenges. Short-term credit lines can be useful for covering day-to-day expenses or short term projects, and they might also help you build business credit for the future if you manage the account responsibly. 
• SBA Microloans: An SBA Microloan is a special type of loan backed by the Small Business Administration (SBA). Eligible borrowers can finance up to $50,000, but the average loan amount is $13,000. Good credit is helpful, but not a requirement to borrow. However, it is important to demonstrate a solid business plan and community impact to qualify for funding. 
• Revenue-based financing: This type of funding offers your business fast access to cash by letting you borrow against money your company will earn in the future. It’s not technically a loan, but a type of advance against future sales or invoices. Typically, your business must repay through fixed daily, weekly, or bi-weekly payments. In addition to the rapid repayment structure, revenue-based financing can be expensive—especially if you have poor credit. 

Comparing secured vs. unsecured lines of credit.

If you decide a business line of credit for bad credit is the best path for your company, compare secured credit lines vs. unsecured credit lines before you fill out an official financing application. Both financing options have their advantages and disadvantages. The table below provides a side-by-side overview of their key differences. 

Each type of credit line can work for different goals. The key is to compare the features and figure out which option makes the most sense for your business.

Strategies to strengthen your application and increase approval odds.

Trying to open a new business line of credit (or any other type of business loan) when you have bad credit can be stressful. Yet there are steps you can take to try to improve your chances of approval now while you work on building better credit for the future. 

1. Show consistent cash flow. Good cash flow with regular deposit history and steady revenue streams can work in your favor when you apply for credit. These actions may help demonstrate financial stability and an ability to handle new debt. 

2. Organize financial documentation. Keep your financial records in order. Maintain clean profit-and-loss statements, balance sheets, tax returns, and bank statements so you’ll have everything you need for your next financing application.

‍3. Provide a detailed repayment plan. Spell out how much you plan to draw, how you’ll use the money you borrow, and when you’ll repay based on your cash flow timing. Include best and worst case projections and contingency plans. Depending on the lender, providing this document along with your application might tip the scales in your favor when you apply for a new credit line.

4. Offer collateral or a co-signer. Collateral reduces a lender’s risk when you apply for a business line of credit. A co-signer with good credit could help accomplish the same goal (though that co-signer would be accepting significant risk instead).

5. Pay existing debts on time. A history of on-time payments builds trust and could help improve your credit score over time.

‍6. Compare offers. Shop around to make sure you find the best offer available. The Lendio marketplace can help you compare financing offers without unnecessary hard credit inquiries.

Managing and building credit after opening a business line of credit.

Opening a new business line of credit with bad credit can be a major win. But your next steps matter just as much. Here’s how to manage your new credit line to build good business credit. 

• Pay on time, every time. Better yet, make a habit of paying your bill early each month. (Some business credit scoring models actually reward you for early payments.) A single missed payment has the potential to lower your business and personal credit scores. And late payments could remain on your credit reports for up to seven years. 
• Use revolving credit strategically. Borrow only what your business can afford to repay within its repayment terms (ideally by the due date on your next statement).
• Monitor your credit. Keep an eye on your business and personal credit reports on a regular basis. Watch for signs of fraud, errors, or negative activity. ‍
• Plan to refinance. Make a plan to refinance your business line of credit in the future once your credit improves. Doing so has the potential to save you a bundle on interest rates and fees.

Final thoughts.

Bad credit doesn’t have to shut the door on your financing goals. Many small business owners find ways to open business lines of credit despite past setbacks by finding the right lender and  highlighting other strengths like reliable revenue and collateral.

If you need to seek financing while you still have bad credit, treat this phase like a rebuild instead of a roadblock. Get the working capital you need now, then aim to stack early payments and other good credit management habits to put yourself in a better position to refinance later. When you show lenders how your business runs (not just what your credit score says), you have a better chance of turning a bad credit chapter into a better rate, and a stronger company in the long run.

Business lines of credit are one of the most widely used types of financing when it comes to small businesses. According to findings from the Federal Reserve Banks’ 2024 Small Business Credit Survey, 34% of small businesses surveyed regularly used or carried a balance on lines of credit.

This type of small business financing is a great solution for short-term funding and covering operating expenses. But what is it, and how exactly does it work? We’ll break down everything you need to know about business lines of credit in this guide.

What is a small business line of credit?

A small business line of credit is a flexible financing option for businesses that allows business owners access to a predetermined amount of money that they can draw from as needed. With a line of credit, the owner has access to the money, but doesn’t receive it all in a lump sum upfront. This structure makes a line of credit more similar to a credit card than a traditional term loan.

How a business line of credit works.

When you’re approved for a small business line of credit, your lender gives you access to an amount of money to use for business purposes up to the limit agreed upon. You can then use amounts you need from the line of credit at any time, up to the limit. 

Think of it like an envelope of cash the bank gives you for rainy day expenses. You don’t have to ask the bank for money every time you need it, since you’ve already been approved for that amount. You also don’t have to use all the funds if you don’t need to, giving small businesses more control over expenses, interest, and paying back on the loan.

To use the line of credit, generally you’ll transfer the funds you need into your bank account from the line of credit, or use special checks to draw directly from the line. 

Depending on the type of line of credit you have, the funds you borrow and repay may or may not become available again to borrow up to your limit. Let’s talk about these categories of lines of credit next, so you know the difference.

Revolving vs. non revolving line of credit.

Your line of credit will typically fall into two categories: revolving, or non-revolving. With a revolving line of credit, you can borrow repeatedly up to the credit limit as you repay the balance—similar to a credit card.

A non-revolving line of credit is a fixed limit. Each time you borrow from the line, and repay, that amount is not available for use again. Once you use all of the approved funding up to the limit, the account can’t be reused, and you’ll need to apply for a new loan. This makes a non-revolving line of credit more similar to a traditional loan.

Paying back a line of credit.

Business lines of credit are a short-term funding solution. Most lines of credit will need to be repaid within 1-2 years. Similar to any other loan, you’ll make regular payments on your balance towards the principal, as well as interest charges on the funds you have used. 

Read our guide to business line of credit interest rates to learn about average rates and what influences the rate you get.

The first steps in setting up your business can be exciting, and building something from an idea can be transformative. You dream of expansion, yet when you’re ready to take the next steps, you may find yourself unable to move forward due to a lack of capital and staffing bottlenecks.

It’s people that are the beating heart of any business. Yes, exciting and efficient tech has its place, such as onboarding and payroll software, but it’s your staff who implement and drive your company and its brand.

For instance, you might be ready to expand your team to support growth or improve payroll efficiency, but lack the funds to bring in the right expertise. As you remove operational bottlenecks, you may also need to invest in people who can create smoother, more consistent onboarding experiences for new employees.

If you’re at the point where you’re ready to bridge the gap between your ambitions and your current resources, keep reading to learn how a business loan for hiring could help you grow your team.

Why is hiring a strategic investment?

You may find yourself stretched too thin simply because you don’t have enough time or team members to support your growth. This, in turn, limits your bandwidth for strategic work because your focus is distilled. The more you’re able to delegate the operational tasks, such as onboarding, payroll, and so on, the more you can focus on strategic aspects of your business.

In other words, by taking on skilled hires, you’re confidently investing in boosting productivity, sales, and your customer experience. An investment in people facilitated by, for example, a business loan for hiring or a payroll loan,  can bring you long-term returns on your investment (ROI). You’re building a business that not only offers excellent products and services but is also backed up by exceptional talent, creativity, and efficiency.

How business loans can help you grow your team.

There are a number of ways in which your business growth can be boosted. For example:

• Working capital loan: a short-to-medium business loan to fund day-to-day operations and cover immediate cash flow shortfalls
• Term loan: a loan that offers a set amount of money to be repaid by a pre-agreed period of time using regular repayments‍
• Lines of credit: a more flexible option that gives you access to a pre-agreed amount of cash that can be borrowed and repaid multiple times

Any of the above options can be used to fund or create a cushion or financial buffer for expenses incurred during periodic or one-off recruitment drives, subsequent onboarding, and payroll. In addition, you may consider a business loan for any of the following hypothetical hiring scenarios:

• More sales reps to focus on growing the business by entering new markets
• More production staff to meet growing demand
• Install a marketing specialist to raise brand awareness
• New employees for a time-sensitive project

Any of the above can potentially free up leadership time to focus on strategic business development.

The beauty of a business loan is that you have the freedom to use it to cover not only upfront costs but also ongoing expenses, such as employee salaries, benefits, and software tools. Not only that, but the right business loan can give you the space to grow without disrupting your cash flow.

Covering payroll and recruitment costs.

Instead of a long-term business loan, you may benefit from something shorter-term to stabilize payroll during hiring periods or cash flow gaps.

Such a loan might, for example, cover:

• Hiring fees and job postings
• Background checks and onboarding
• Staff training and certifications
• Initial payroll run until revenue generated from hiring increases

The last point is especially significant because time-to-productivity can be weeks to months. For example, explain why this matters: new employees often take weeks or months to become fully productive. A Gallup report suggests that it can take up to 12 months for new hires to become productive.

Choosing the right financing option.

If your priority is to cover immediate hiring or payroll costs, a short-term loan can provide quick access to funds when you need them most. For companies that experience seasonal surges or ongoing recruitment cycles, a business line of credit offers flexibility by allowing you to draw funds as required to manage payroll during busier periods.

When planning for sustained growth and larger-scale hiring, SBA loans (small business loans) are often the most suitable option, offering lower interest rates and longer repayment terms.

Tip: Use cash flow projections to help gauge your repayment capacity. A well-timed loan, aligned with a clear hiring plan, can help your business unlock meaningful growth.

Avoiding common pitfalls.

Before diving in and applying for a hiring loan, it’s essential to avoid common mistakes. These include:

• Overhiring before your revenue justifies the expense
• Not being strategic about hiring, for example, hiring for roles that don’t generate or protect revenue.
• Poor record keeping. It’s essential that you keep detailed and consistent financial records to ensure your loan funds are used responsibly.

In addition, it’s important that you approach a lending institution that meets your needs. For example, According to the FDIC Small Business Lending Survey, 53% of small businesses prefer to apply for a loan online. Yet, only 29% of large banks and 8% of smaller ones have the technology to do this.

When lenders look at small business loan applications, they will assess your application. Strong workforce planning will help lenders see you as a lower risk, thereby improving future financing options.

Long-term payoff: Turning payroll into growth

Instead of viewing hiring as an expense, think of it as an investment in your business’s long-term growth and performance.

For example, imagine a small retail business that takes out a loan to hire a digital marketing manager. Within six months, that new hire drives a 40% increase in online sales through targeted campaigns that build brand visibility and customer engagement.

This hypothetical scenario shows how investing in talent through business financing can create measurable, sustainable growth. Lendio’s mission is to help small business owners turn their ambitions into reality. Start your application today to grow your team and unlock your full potential.

If you’ve taken on debt for your small business, you’re not alone. The latest Small Business Credit Survey found that roughly 87% of small businesses rely on financing—either loans or credit cards.

Debt can be necessary at times, but high interest rates can cut into your monthly profits. Having to juggle multiple payment dates can also be stressful, sometimes overwhelmingly so. With an SBA loan, small business owners can refinance their existing debts to simplify repayment and lower interest rates, turning financial strain into long-term stability.

Why refinancing makes sense for small businesses.

Whether you’re just starting or you’ve been in business for a while, refinancing your high-interest debts can be a smart move. That’s because interest charges can eat into operating margins, especially for businesses that rely on expensive financing options like:

• Revenue-based financing—Might have anywhere from a 40% to a 350% equivalent rate‍
• Business credit cards—Tend to have high rates, with some lenders offering between 15% and 26% APR

With interest rates expected to remain elevated, small business owners are increasingly turning to SBA funding for relief. So far this year, the SBA has provided financing to nearly 80,000 small businesses via 7(a) and 504 loans with a total approval amount of $37 billion (including both financing and refinancing).

Here’s why refinancing with an SBA loan might make sense for your small business:

• You could get a lower rate—This means less money spent on interest payments
• It lowers your monthly payments—A lower rate or a longer repayment term could mean smaller monthly payments
• It improves cash flow—The less you spend on your debts, the more cash you’ll have to maintain or expand your venture
• Payments are easier to manage—Refinancing can consolidate business debts into one simply monthly payment for easier bookkeeping

How SBA loans work for refinancing.

SBA loans are business loans that are partially backed by the U.S. Small Business Administration. The SBA guarantees a certain percentage of these loans (between 50% and 90%), making them easier to get than other commercial financing. Rates and terms may also be more favorable.

SBA loans can be used to consolidate business debt or refinance existing loans, provided certain requirements are met. Common criteria include:

• 165 minimum FICO Small Business Scoring Service (SBSS)
• 650 minimum credit score
• 2+ years in business
• Sufficient revenue (varies)

The SBA has multiple programs for small businesses, but two of the most popular refinancing options are:

• SBA 7(a) loans—The SBA’s most flexible loan program, SBA 7(a) loans, are often used to refinance multiple high-interest debts or commercial real estate loans‍
• 504 loans—These loans are typically used to consolidate or refinance qualified debt, including fixed-asset loans like equipment or commercial real estate

Standard 7(a) loans range from $350,001 to $5 million and come with 10-year repayment terms (or 25 years for real estate refinancing). SBA loan interest rates may be fixed or variable, and the maximum variable rate is set every month according to the Wall Street Journal Prime Rate. Visit our quick guide for the most current SBA interest rates.

Repayment terms for 504 loans are also 10 to 25 years. Interest rates are fixed. Most loans cap out at $5.5 million, but may require up to a 10% down payment.

Before offering an SBA loan refinance, lenders must ensure it will improve your financial position. The new loan must get you a lower interest rate, a longer repayment term, or both.

You may need to meet other criteria, too. Say you want to refinance an installment loan with an SBA 504 loan. At least 75% of your original debt must have been used to purchase major equipment or commercial real estate. Verify any lender’s requirements before you apply.

Key benefits of SBA loan refinancing.

Refinancing business debt with an SBA loan comes with many benefits, like:

• Lower interest rates—SBA loans often offer rates several points below traditional loans or merchant cash advances
• Extended repayment terms—Spread payments over 10 to 25 years to improve cash flow for expansion or other operating costs
• Single, simplified payments—Consolidate multiple debts into one predictable monthly payment
• Improved credit profile—Consistent, on-time payments can help rebuild business credit

Take a restaurant owner who has the following business debts:

• $50,000 installment loan with an 18% interest rate, five-year term, and $1,189 monthly payment
• $30,000 equipment loan with a 15% interest rate, three-year term, and $1,040 monthly payment
• $40,000 installment loan with a 14% interest rate, four-year term, and $1,093 monthly payment

The total monthly payment is $3,322.

If the restaurant owner takes out a $120,000 SBA loan with a 12% interest rate and a five-year term, they could use it to consolidate all three debts and reduce their monthly payment to $2,669.

Eligibility and requirements for SBA loan refinancing.

For an SBA loan refinance, you’ll typically need:

• To be operating a U.S.-based, for-profit business
• A business in good standing with reasonable credit history (personal and business)
• To meet the SBA’s size requirements
• A demonstrated ability to repay the loan

For refinancing, the existing debt must have been used for business purposes and originally structured on reasonable terms. Both the SBA and the lender will review your financials, tax returns, and business debt schedules.

Here’s a tip: Organize your documents early to speed up approval and demonstrate responsible financial management.

How to start the SBA loan refinance process.

Thinking about refinancing with an SBA loan? These are the general steps:

1. Review all current debts, rates, and balances.
2. Calculate potential savings from lower rates and longer terms.
3. Work with a marketplace like Lendio to compare SBA lenders and programs.
4. Make sure your business (and debts) meet any specific qualifications to refinance.
5. Prepare documentation (financial statements, tax returns, debt schedules).
6. Apply and wait for a decision.

Ready to get started? Find the refinancing you need on Lendio’s marketplace today.

Finding funding for a small business often requires balancing opportunity with risk. One example of this type of tradeoff often happens when you apply for a business line of credit and encounter a requirement for a personal guarantee.

Lenders frequently use personal guarantees as a safety net when extending unsecured lines of credit or small business loans. When you sign one, you agree to personally repay a debt if your company falls behind on its financial commitment. 

It’s important to understand the responsibility that a personal guarantee involves and what could happen to your personal assets if anything goes wrong. Read on to learn how personal guarantees work, why lenders require them, and whether it’s possible to secure a business line of credit without one.

Reasons a lender might require a personal guarantee for a business line of credit.

Lenders use personal guarantees to reduce their risk when they issue business lines of credit or business loans (especially to startups or smaller businesses). A personal guarantee helps reassure the lender that someone will take responsibility for the debt if the business defaults. 

Here are a few situations where lenders typically ask for a personal guarantee on a business line of credit.

1. The business lacks established credit history.

Newer companies often lack well-established business credit. So, it can be harder to qualify for startup business lines of credit (though not necessarily impossible). When your business credit profile is thin or nonexistent, lenders may rely on your personal credit as a backup (also known as a compensating factor). A personal guarantee may also give lenders added confidence that you’re invested in repaying the money your business borrows.

2. The business credit line is unsecured.

If you apply for an unsecured business line of credit, it means you won’t provide the lender with any collateral such as real estate, equipment, or inventory to back the funds your company borrows. As a result, the lender carries more risk than it would if you applied for a secured business line of credit. To offset this added risk, the lender may ask for a personal guarantee to help protect its financial interests against the possibility of default.

3. The lender has strict guidelines.

Banks and credit unions often have tighter borrowing requirements compared to online lenders when you apply for a business line of credit or other financing. Even if your business shows solid revenue, traditional lenders might still require a personal guarantee until your company builds a lengthier credit history, stronger financial records, or more collateral.

What is a personal guarantee and how does it apply to business credit?

A personal guarantee is a legal promise that a business owner (or owners) will repay a financial obligation if their company fails to do so. When you sign a personal guarantee, you’re essentially co-signing a business debt. It’s a legal commitment that lets a lender pursue your personal assets (e.g., savings accounts, property, etc.) if your business defaults. 

Personal guarantee requirements are more common with unsecured lines of credit. With this type of financing, the guarantee often serves as the lender’s only protection against nonpayment. In some cases, lenders may still request a personal guarantee for secured business credit lines even though the collateral already reduces the lender’s risk.

As a business owner, the key takeaway is that signing a personal guarantee ties your personal and business finances together. It can open doors to funding you might not be able to access otherwise, but it exposes your personal wealth to potential loss if your business struggles.

Key factors that influence lender requirements.

Personal guarantees are common with business lines of credit, but not universal. Still, the higher a lender perceives your risk to be, the more likely you are to see a personal guarantee requirement, higher interest rates, lower credit limits, or all three.

Below are some common factors lenders consider when setting borrowing terms.

Time in business

Lenders are typically more comfortable extending credit to businesses that have operated for at least two years. In general, startups and newer businesses have higher risk profiles, and that could increase the likelihood of a personal guarantee requirement.

Business revenue and cash flow

A healthy, consistent cash flow may demonstrate strong repayment ability. Stronger revenue and positive cash flow might make some businesses eligible for lower interest rates, higher credit limits, or a smaller personal guarantee.

Credit scores (business and personal)

Higher business credit and personal credit scores may reduce perceived risk. But if your credit history shows missed payments or high debt, a lender may require a personal guarantee or charge a higher interest rate on your credit line.

Lender type and risk tolerance

Where you apply for a business line of credit also influences the borrowing requirements you encounter. Online lenders with more flexible criteria may offer business credit lines with lower documentation requirements (and, occasionally, limited or no guarantees). Banks and credit unions, however, often insist on personal guarantees—even for well-established businesses.

How personal guarantees affect borrowers and business owners.

Personal guarantees can help small business owners access the funding they need, but they also raise the stakes. It’s important to understand the tradeoffs upfront. 

If you sign a personal guarantee

You’ll likely enjoy easier approval odds and possibly a lower interest rate, since you’re reducing the lender’s risk. At the same time, you take on full personal liability if your business defaults. Your personal assets (e.g., bank accounts, investments, property, etc.) could be on the line to repay the debt. 

If you don’t sign a personal guarantee

Without a personal guarantee, lenders must rely solely on your business’ creditworthiness and any collateral you provide. As a tradeoff, you may face stricter eligibility requirements, smaller credit limits, or higher interest rates. Some lenders might decline your application altogether if the business appears too risky.  

Options for securing a business line of credit without a personal guarantee.

A personal guarantee requirement is common when you apply for a new business credit line. Still, you can sometimes find financing options with a reduced guarantee or, in rare cases, no guarantee. Below are a few solutions to consider.

Secured business line of credit

With a secured credit line, the business pledges collateral like equipment, receivables, or real estate to back the money it borrows. Because the lender can claim those assets if the business doesn’t repay, the lender may sometimes reduce or remove personal guarantee requirements.

You accept the risk of losing business assets. However, you may protect your personal finances and credit in the process. 

Alternative financing solutions

Some funding products give you access to capital without (or with less) personal guarantee exposure. They’re not always cheaper, but they shift your risk exposure. 

• Revenue-based financing: Some alternative funders advance cash in exchange for a portion of future sales or bank deposits. These options usually cost more than traditional credit lines, and repayment terms may be daily or weekly. But they might not require a full personal guarantee, especially for businesses with strong incoming revenue.
  
  
• Invoice financing: With invoice financing (also called accounts receivable financing), you use unpaid invoices as collateral. The financing company advances you a portion of your outstanding invoices now, then collects repayment (plus fees) when your customers pay. The invoices act as repayment security, so you may not face a full personal guarantee requirement like you typically see with an unsecured revolving credit line.
• Grants: Business grants (including some SBA grants and local development grants) don’t require repayment or a personal guarantee. Yet although these funding solutions are attractive, they can be competitive, slow, and restricted to specific industries or uses.

Some business lines of credit and business loans almost always require a personal guarantee, especially from small businesses and startups. For example, many SBA loans require personal guarantees from any owner with a significant stake in the company. Even though SBA programs support small business owners, lenders still want a path to recovery if the business fails to repay its debt.

Eligibility requirements and application considerations.

Every lender is different. Yet before you can qualify for a business line of credit, you’ll typically need to meet some basic lender requirements. 

• Credit history and score (business and personal): Lenders consider both business and personal credit. A minimum personal credit score of 600 or higher is a common requirement, and many lenders also want to see on-time payment history and well-managed debt levels.
• Annual revenue and monthly cash flow: Lenders review your deposits and cash flow to confirm the business has the capacity to repay. Consistent monthly revenue (often around $8,000 or more) may improve approval odds or help you qualify for better pricing.
• Time in business: More time in operation can reduce lender risk. Companies with two years or more in business tend to face fewer personal guarantee requirements than brand-new startups.‍
• Collateral: If you can secure a credit line with collateral, you may have more negotiating room where a personal guarantee is concerned.

If you want to improve your chances of qualifying for a credit line (or a competitive offer), make sure your company’s financial statements are organized and up to date. A strong credit profile also helps, and an existing lender relationship might come in handy in certain situations. 

How to strengthen your profile to reduce or avoid personal guarantee requirements.

Personal guarantees are common with business credit lines, especially for smaller businesses. Yet if your goal is to reduce or avoid this requirement, the following tips may help. 

1. Build strong business credit

Establishing good business credit scores is a smart move for many reasons. You can start building business credit by opening accounts under your company’s name (e.g., vendor credit lines, business credit cards, etc.) and paying them on time or, better yet, early.

2. Improve financial stability

Lenders want proof that your company is financially capable of repaying its debts. As a result, maintaining positive cash flow, managing debt responsibly, and reinvesting in your company’s growth are three practices that can work in your company’s favor and support long-term business health. 

3. Strengthen financial documentation

Make a habit of maintaining detailed financial statements, cash flow projections, a business plan, and proof of consistent revenue. The stronger your business financial statements look, the better your chances of qualifying for funding when you need it.

4. Offer collateral

A secured credit line uses assets like equipment or real estate as security in place of (or alongside) a personal guarantee. With this arrangement, you still risk losing business property in a default, but personal assets stay more protected.

5. Negotiate terms

If avoiding a personal guarantee (or reducing a guarantee requirement) matters to you, you might be able to negotiate financing terms with the lender. Consider improving your borrower profile to put yourself in a better position first. Next, shop around for multiple financing offers. From there, you can make specific requests about the terms you’d like to change (personal guarantee or otherwise) to see if the lender is willing to adjust the offer.

When to consider a co-signer or collateral.

If a lender insists on a personal guarantee for a business line of credit and you don’t want full personal liability, you still have options. Below are a few to consider. 

Bring in a co-signer or additional guarantor

A co-signer with strong personal credit can help spread the lender’s risk across more than one person. This structure might help you qualify when you might otherwise struggle on your own.

Bringing in a co-signer or additional guarantor could also help disperse the burden of liability if your business defaults on its debt. If something goes wrong, the lender has multiple guarantors to seek repayment from instead of the full repayment responsibility falling on a single owner. 

Offer collateral instead of (or in addition to) a guarantee

Depending on the lender and the financing offer, you can sometimes negotiate a smaller personal guarantee if you secure the credit line with business collateral. In this scenario, the collateral becomes the lender’s first path to recovery if a default occurs. From there, your personal guarantee (if applicable) backs up any remaining shortfall. This setup can help protect personal assets while still moving the approval process forward. 

Final thoughts: Balancing risk and access

For small business owners, a personal guarantee may unlock access to critical financing opportunities your company needs to thrive and grow. Signing a personal guarantee could help you qualify for a business line of credit before your company has a lengthy credit history, strong assets, or years of financial statements under its belt.

But a personal guarantee also exposes you as a business owner. You take on personal liability for business debt. You accept risk to your personal assets and credit if the business fails to repay its debt as promised.

That doesn’t mean you should never sign a personal guarantee. But you should treat the commitment like any other high-impact financial decision. Understand the obligation, know what the lender can require if your business defaults, and build a plan to move away from personal guarantees as your business becomes more established.You can explore secured and unsecured business line of credit options, along with other business funding solutions, through the Lendio marketplace. Research to find which financing solutions make the most sense for your business goals.