Securing funds for a business is quite challenging. Most of the time, lenders fail to entertain your application because of a bad credit history. Business loans follow stricter criteria in relation to personal loans. Whether you want to purchase an asset or you want to bridge the gap in working capital, a business loan can come in handy. However, securing a business loan is not as easy as securing a personal loan.
Your credit rating should be stellar in order to qualify for a business loan. If your credit history is not up to snuff, you will be restricted from borrowing a large amount of money. Chances are, you end up being repudiated. Here comes the role of a guarantor.
Guarantor business loans can be small and large. They are aimed at those whose credit score is not so impressive. The guarantor you arrange must have a good credit history and be obligated to discharge the debt in case you default.
Arranging a guarantor is not a cinch because the guarantor will lose their credit points in case you default. You should take out a guarantor business loan only when you are completely certain about your repayment capacity.
The main benefits of using a guarantor for a business loan
Here are the benefits of using a guarantor for a business loan:
- It increases your chances of qualifying for a loan
When your credit score is not up to snuff, you will certainly face challenges to get the nod from a lender. Most of the lenders will not entertain your application in case of a poor credit rating, and if they do, they will approve only a small amount of money. Here comes the role of a guarantor.
By arranging a guarantor, you will be able to increase your chances of qualifying for a loan. It mitigates the risk of a lender because a guarantor would be called on to discharge your debt in case you fail to meet it.
How much amount a lender would be able to approbate depends on the repaying capacity of yours and your guarantor.
- Affordable loan terms
Another benefit of arranging a guarantor is that you will be able to qualify for affordable loan terms. Lenders often restrict for a longer repayment plan. It means you will have to pay down the debt in large instalments. This will increase the burden of payments. Your business cash flow might be disturbed due to large payments.
But by arranging a guarantor, you have a chance to choose a longer repayment plan. It will enable you to pay down the debt with little effort. Since a longer repayment plan reduces the size of the instalment, you can easily manage the debt.
- You can grow your business
One of the greatest benefits of using a guarantor for a business loan is that you can grow your business fast. For instance, if you need money to purchase equipment, you can use a guarantor business loan. Likewise, if you want to bridge the gap in working capital, you can count on these loans.
Business loans are quickly approved when you arrange a guarantor. When you need money for an urgent reason, you cannot wait for days to have your application processed. With the help of a guarantor, your credit profile looks strong, and your lender initiates the process.
With the help of a guarantor, you can also qualify for an affordable interest rate despite a bad credit score. This will reduce the burden on your finances.
Sometimes you have to give a personal guarantee
Arranging a guarantor is not a cinch. Most of the people are well aware of the repercussions of being a guarantor. If you fail to discharge the debt, they will end up losing their credit score, and they will also have to discharge their debt. It is likely that no one is disposed to act like a guarantor. If that is the case, you will have to provide a personal guarantee.
A personal guarantee is a legal agreement between you and your lender that states that you will be personally obligated to repay the debt if your business struggles to arrange money to settle the dues.
Giving a personal guarantee means your personal assets will be used to pay off your business loan. A lender would also consider your personal credit rating to check your affordability. If your company has two or more directors, they will also have to give a personal guarantee, and if any one of you fails to repay the debt, the other partners will be responsible for discharging it.
At the time of giving a personal guarantee, you must take advice from an expert. There are some adverse consequences of giving a personal guarantee. However, lenders seek the guarantee only when you need a large amount of money.
Consider using secured business loans instead
A personal guarantee is sought after when you need a large amount of money for your business needs, and your credit score is already worse. The ultimate aim of the lender is to mitigate the risks involved in lending you money.
If you are hesitant about giving a personal guarantee, you should try to consider secured business loans in the UK. A secured business loan allows you to borrow a sum of money at affordable interest rates. The security will be your business assets. However, bear in mind that the value of it must be appreciating, so they can easily recover money in case of a default.
Secured business loans improve your chances of qualifying for lower interest rates as the collateral you put down whittles down the risk on the part of the lender.
The bottom line
There is no doubt that arranging a guarantor for a business loan can improve your chances of qualifying for it. However, sometimes, you may need to give a personal guarantee too. Remember that your lender will still be able to lend you money to meet only small expenses.
If you need a large amount of money, you should consider a secured business loan in the UK. Experts enjoin that you must have a good credit rating to apply for a business loan. Having a decent credit report will always increase your chances of qualifying for a business loan at lower interest rates. You do not have to get into the formality of arranging a guarantor.

Harry Kane is a financial writer and author who has covered wide topics related to business loans and finance for the last decade. He has been working as the Chief Contributor in finding out deals on various business finance products covered by Thebusinessfunds, a reputed business loan broker firm in the UK. The primary work of Harry is to analyse the loan requirements of various businesses according to their circumstances and affordability. He directly communicates with the loan aspirants and guides them to get the right loan matching their needs. He has a vast experience in finance writing, working with many major business firms in the UK. At Thebusinessfunds, Harry also used to write well-researched blogs covering the financial problems of business loan aspirants and providing relevant solutions. He is a postgraduate with MSc. in Banking and Finance.