What does it mean to be the guarantor when you sign personally for the business to get a loan? If a lender issues a loan to your business but then requires you to use the merits of your credit to secure the loan, you’re acting as the guarantor. The bad news in this scenario is that if your business defaults on this loan or misses payments, the lenders can choose to come after you personally to repay the loan. The lenders can also report this default to the personal credit bureaus, thus having an impact on your personal credit scores.

The good news that trumps the bad news is that the loans under the company name do not show up on your personal credit report unless you default. When acting as the co-signer or guarantor for the business can also be referred to as the “ghost guarantor” because the existence of this debt doesn’t show as existing on your personal credit profile.

This allows business owners to keep their personal credit free from business debt, which will help them get approved for mortgages or other personal loans. The business’s debt doesn’t appear on the business owner’s personal credit report. The additional benefit is that any loan you act as the guarantor for means your business is getting loans in its name and building its creditworthiness while simultaneously establishing a credit history.

It takes time, but it’s worth it.

The establishment of business credit is similar to personal credit because you must get loans and show a track record of repaying those loans. The more you do it, the more history you build, and with the establishment of that history, you will set your business on course to be creditworthy much faster. Every business must expect to start out getting smaller loan amounts and then building access to more significant loan amounts over time.

If you have a business that needs to lease or buy equipment, machinery, or multiple vehicles, you cannot have all of that debt shown or tied directly to your credit report. If you make that mistake, it can paralyze your ability to borrow money personally if you’re solely carrying the company debt burden in your name.