X-Banker

Boo! Ghost Guarantees

February 11th, 2008

By The XBanker

Entrepreneurs routinely leverage their personal assets and credit cards to fund and grow their businesses, only to leave their personal credit circling the bowl as their lending options dwindle away. FOOLS!

Alas, personal credit scores are heavily-weighted against revolving debt (credit cards) and inquiries—two common bi-products of being an entrepreneur. If you’re not careful, it’s easy to over-leverage your personal credit and push your revolving debt ratios (current debt divided by available credit) beyond the acceptable limit.

How far is too far? At 40%, expect bank doors to start slamming shut. What can you do?

Separate yourself from your business

Unsecured business lines of credit are the entrepreneur’s best friend. Why? Because unlike a personal credit card or a home equity loan, most offer something called a ghost guarantee.

Most banks, and certainly all of the banks I work with, permit a ghost guarantee for their unsecured business lines of credit. What this means is that while you are personally guaranteeing the line of credit, it does not show up on our personal credit report! The only time a ghost guarantee will impact your personal credit is if you go into default—in which case you deserve to be outed.

Used wisely, an unsecured line of credit can enable you to keep your personal credit personal, and put your business debt where it belongs—on your business’ credit.

This entry was posted on Monday, February 11th, 2008 at 1:11 pm and is filed under Business Credit, Finance Strategy, Insight, Small Business Loans, Unsecured Lines of Credit, personal guarantee. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

1. Tim Ramsey said at February 11th, 2008 at 1:26 pm

   I found your site on technorati and read a few of your other posts. Keep up the good work. I just added your RSS feed to my Google News Reader. Looking forward to reading more from you.

   Tim Ramsey

2. The XBanker said at February 19th, 2008 at 1:14 pm

   Welcome aboard – I hope you’ll find our content relevant and helpful – XB

3. How Real Estate Professionals Can Properly Finance Their Business at The XBroker said at March 5th, 2008 at 4:11 pm

   [...] no personal guarantee at all! Most bank lines and credit cards will have what I call a “ghost guarantee” – which means that you are approved based on your personal credit, with you personally on [...]

4. Business Credit Cards - Key to Success | The XBanker said at April 8th, 2008 at 10:41 am

   [...] business credit card is that it doesn’t report to the personal credit bureaus (see my post on Ghost Guarantees). This is critical, because it helps you keep your personal credit strong (I’ll talk more [...]

5. What Business Credit Card Is Right For You? | The XBanker said at June 9th, 2008 at 1:35 pm

   [...] I’m a total points addict); however, the most important part of a business credit card is the ghost guarantee that they provide you as a business owner – which can serve to protect your personal credit from [...]

Leave a Reply

Name (required)

Email (will not be published) (required)

Website