How to Get Business Credit With No Personal Guarantee
As a small business owner, one of the key milestones you’ll want to reach is being able to access business credit without the need for a personal guarantee (PG). A personal guarantee means that if your business can’t repay the credit, you are personally liable for the debt, which can impact your personal assets and credit score. However, there are ways to build business credit without putting your personal finances at risk.
In this article, we’ll walk through how to get business credit with no personal guarantee, focusing on non-PG (non-personal guarantee) credit options such as vendor credit and business credit cards. We’ll also discuss how to effectively separate business and personal credit to help you achieve this goal.
1. What is a Personal Guarantee (PG)?
Before diving into non-PG credit options, let’s briefly understand what a personal guarantee is.
A personal guarantee is a legal promise made by the business owner to personally repay business debts if the business cannot. This means if the business defaults on a loan or line of credit, the lender can pursue the owner’s personal assets—like their home or savings— to recover the debt.
Many small businesses, especially those just starting out, are often required to provide a personal guarantee when applying for business credit. But this doesn’t have to be the case forever. With the right steps and strategies, you can build business credit without a PG.
2. Separating Business and Personal Credit
One of the first things you need to do when working toward no personal guarantee business credit is to separate your business and personal finances. This is essential not only for building business credit but also for protecting your personal assets.
Here’s how you can separate your business and personal credit:
Form a Legal Business Entity: Establish a legal structure for your business, such as an LLC (Limited Liability Company) or corporation. This helps establish your business as a separate legal entity from you, the owner.
Obtain an Employer Identification Number (EIN): An EIN is like a Social Security number for your business. It’s required to apply for business credit, and it helps differentiate your business from your personal finances.
Open a Business Bank Account: Set up a business bank account using your EIN. Use this account exclusively for business transactions and keep personal transactions separate.
Apply for Business Credit in Your Business’s Name: When applying for credit, use your business’s name and EIN, not your personal information.
By separating your business and personal finances, you can protect your personal assets, reduce the chances of needing a personal guarantee, and start building business credit.
3. Non-Personal Guarantee Business Credit Options
Now let’s explore some non-personal guarantee (non-PG) business credit options you can pursue as you work to build your business credit profile.
Vendor Credit
Vendor credit is a great way to start building your business credit with no personal guarantee. Vendors are businesses that offer goods or services on credit, allowing you to buy now and pay later. Many vendors, especially those who deal with other businesses regularly, report your payment history to the business credit bureaus, which helps build your business credit profile.
How Vendor Credit Works:
Terms: Vendor credit usually comes with payment terms of 30, 60, or 90 days. For example, you might get 30 days to pay back the amount you owe for a purchase.
Reporting to Credit Bureaus: To build business credit, make sure the vendor reports your payments to business credit bureaus like Dun & Bradstreet, Experian Business, or Equifax Business.
Start Small: Begin with vendors that offer small credit lines to businesses that are just starting to build credit. Once you make timely payments and demonstrate good financial behavior, you’ll be able to access larger lines of credit.
Examples of Vendors Offering Business Credit:
Uline: A supplier of shipping and packaging materials that offers net-30 terms (you pay in 30 days).
Quill: A retailer for office supplies that offers net-30 terms to help build business credit.
Grainger: A supplier of industrial products that offers net-30 terms and reports to the major credit bureaus.
Actionable Tip: Start by establishing relationships with vendors who offer trade credit, use their products, and pay your bills on time to build your credit profile without needing a personal guarantee.
Business Credit Cards
Another option for building business credit with no personal guarantee is applying for business credit cards that do not require a PG. These cards can help your business gain access to credit without linking your personal finances.
How Non-PG Business Credit Cards Work:
No Personal Guarantee: Some business credit cards are designed for businesses with established credit and do not require a personal guarantee. This means that you won’t be personally liable for any debt incurred on the card.
Report to Business Credit Bureaus: To build your business credit, ensure the credit card reports to business credit bureaus. Many business credit cards do this automatically.
Credit Limits and Rewards: Once your business is established and has a strong credit profile, you can qualify for higher credit limits, cash-back rewards, and travel perks.
Examples of Non-PG Business Credit Cards:
Brex Card for Startups: The Brex business credit card offers a no personal guarantee option for businesses with a solid cash flow. They do not require a personal credit check either, as they base approval on your company’s financial health.
Divvy Business Credit Card: Divvy offers a no personal guarantee option for companies that meet their credit requirements. This card also allows you to manage and track your business spending, which can be especially helpful for budgeting.
Stripe Corporate Card: If your business processes payments via Stripe, you may be eligible for their corporate card, which doesn't require a personal guarantee.
Actionable Tip: Look for business credit cards that offer no personal guarantee and provide great rewards and benefits. Pay off your balance in full each month to build your business credit and avoid high interest rates.
4. How to Build Business Credit Without a Personal Guarantee
To increase your chances of qualifying for non-PG business credit, here are some best practices to help you build a strong business credit profile:
Establish a Business Credit History: Open vendor accounts and business credit cards that report to business credit bureaus. Make timely payments to build your business credit score over time.
Maintain Low Credit Utilization: Just like personal credit, keep your business credit utilization rate below 30% to improve your creditworthiness.
Pay Your Bills on Time: Late payments can harm your business credit score. Set reminders or automate payments to ensure you pay on time.
Build Relationships with Lenders: Work with financial institutions and vendors to establish a solid business credit history, which can lead to more favorable credit terms in the future.
Securing business credit with no personal guarantee is achievable, but it requires a commitment to separating your business and personal finances, using the right credit options, and making timely payments. Vendor credit and non-PG business credit cards are excellent ways to start building your business credit without the risk of personally guaranteeing any debt.
Whether you're just starting out or looking to expand your credit options, we’re here to guide you every step of the way. With the right strategy and approach, your business can build credit independently, protect your personal assets, and open doors to greater funding and opportunities.
About GreenStreet 360
GreenStreet 360 is a business growth and business solutions company that specializes in helping small businesses owners to set their business foundation, build business credit, gain access to business funding and earn referral income as they grow.
