How do you get business credit with no collateral or personal guarantee? This is usually the question on the minds of most startup entrepreneurs.
Now the problem with being a startup or small business entity is the fact that you have very limited capital. As such you need to find the equilibrium between capital assets, inventory, liquid cash, and goods on hand, in transit, or on consignment. One secret to freeing up some capital is to acquire goods and services on business credit.
Now what is Business Credit?
A business credit is an arrangement reached or a memorandum of understanding reached whereby cash, goods, services, etc are made available without any money changing hands or at least, without a substantial portion of the market value being forwarded. Without going into much details or definition of what business credit stands for, below is a guide on how to get business credit with no personal guarantee.
How to Get Business Credit with No Personal Guarantee
1. Register a Limited Liability Company or Limited Partnership
Putting up a limited liability company or Limited Liability Partnership allows you to acquire business credit without the guarantee of the persons involved in the “incorporation.” More importantly, any form of losses incurred from credit taken is only accounted for from the assets of the juridical entity known as the corporation or partnership.
A bright young college graduate without any money walks into a bank and requests a substantial loan with no collateral. Surprisingly enough, the bank agrees to grant the loan. What happened? Well, the bank exercised its discretion in granting a loan based on the existence of a highly profitable business plan. You can do the same also.
3. Join Credit Unions
If you are thinking of putting up a business in the near future, then it is a good idea to look to credit unions for membership. These are non profit entities that regularly grant loans, even business loans to qualified members. More importantly, if you play your cards just right, you may just remove your name as one of the principal creditors and replace the same with the name of your corporation.
4. Apply for Government Grants-: If you are lucky enough to find a non collaterized government loan or small business grants, then grab the opportunity. This is because it is extremely rare to access such opportunities and in most cases it is only the juridical entity that is made liable.
5. Consider Selling Shares
If you are already part of an existing corporation and no creditor wants to give you business credit, then you can consider offering shares either privately or publicly. The arrangement or catch here is that, in exchange for shares in your corporation, one of your suppliers or other entities can become a part owner of your business.
6. Request for Consignment-: Last but not the least, you can request for the consignment of the goods from your supplier. Payment is to follow after actual sales have actually been made.
In conclusion, the above mentioned ideas are only some of the possibilities you can come up with to capitalize your business. There are other ways you can gain access to working capital; for example through NGOs, institutions that support entrepreneurship, etc. Of course, you need to understand that any type of credit is a forbearance which needs to be paid on time and in full.