Can You Get a Merchant Cash Advance Without a Personal Guarantee?

Merchant cash advances (MCAs) have emerged as a popular funding option for small businesses seeking quick access to capital. However, the requirement of a personal guarantee can be a deterrent for many entrepreneurs, as it exposes their personal assets to potential risk should the business fail to repay the loan. Fortunately, there are ways to secure an MCA without jeopardising your personal financial security.

Understanding the personal guarantee

A personal guarantee is a legal agreement that binds the borrower’s personal assets to the repayment of a business loan. This means that if the business defaults on the loan, the lender can seize the borrower’s personal property, such as their home, car, or savings accounts, to recoup their losses.

The MCA’s reliance on sales

A merchant cash advance differs from traditional business loans in that they are not based on collateral or creditworthiness. Instead, they are assessed based on the borrower’s historical and projected card sales. This means that a strong sales history can significantly increase the chances of securing an MCA without a personal guarantee.

Eliminating the personal guarantee requirement

Several factors can contribute to acquiring an MCA without a personal guarantee:

• Established sales history: A proven track record of strong card sales demonstrates the borrower’s ability to repay the loan.
• Positive financial performance: A healthy balance sheet and consistent profitability indicate financial stability and a lower risk to the lender.
• Strong business practices: Adherence to sound business practices, such as proper accounting and management, instills confidence in the lender.
• Diverse revenue streams: Diversification of revenue sources beyond card sales can further reduce the lender’s reliance on the personal guarantee.
• Strategic lender selection: Utilising MCA providers with a reputation for accepting business-backed loans can increase the likelihood of avoiding a personal guarantee.

Considerations for avoiding a personal guarantee

While it is possible to obtain an MCA without a personal guarantee, it’s crucial to carefully consider the following:

1. Repayment flexibility: MCAs typically have high interest rates and shorter repayment terms, which can strain cash flow.
2. Alternative funding options: Explore other funding options that may offer more favorable terms and avoid personal guarantees.
3. Financial management: Maintain strong financial practices to improve the chances of securing a guarantee-free MCA.
4. Thorough research: Conduct thorough research on MCA providers and understand the associated risks and terms before applying.

In conclusion

Securing an MCA without a personal guarantee requires careful preparation, strong financial performance, and a strategic approach to selecting a lender. While it may not be a straightforward process, it is possible to access this funding option without jeopardising your personal assets. By understanding your business’s financial standing and exploring alternative funding options, you can make an informed decision that aligns with your risk tolerance and long-term financial goals.