Finding Small Business Loans without Collateral Requirements
August 15, 2022 | Last Updated on: February 1, 2023
August 15, 2022 | Last Updated on: February 1, 2023
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Generally speaking, it’s easy to get a business loan if you have assets that you can use as collateral. But if you find yourself in a situation where you need a loan but don’t have any collateral available to offer, you can still secure a loan. In fact, there are several financing options available, and we’ll take a look at them in this article, so keep reading.
An unsecured loan is a loan that does not require you to put up any collateral. This means that if you default on the loan, the lender cannot come after your assets (this doesn’t mean you’re off the hook–they can still come after you through legal channels if you fail to pay your obligations).
Unsecured loans are usually only an option for borrowers with a very good credit score, as the lender is taking on a higher level of risk. The interest rates on unsecured loans are also usually higher than for secured loans since the lender doesn’t have the security of the collateral to mitigate their risk.
If you’re considering an unsecured loan for your business, make sure to shop around and compare offers from multiple lenders to get the best interest rate and terms. You should also be prepared to offer some kind of personal guarantee, which means that you will be personally responsible for repaying the loan if your business is unable to do so.
In order to successfully apply for an unsecured loan, you’ll likely need a business plan that shows how you intend to use the funds, proven business income, and good credit history (both personal and business). While you may be able to get a loan without meeting all of these requirements, in general, it’s good to have them on hand to increase your chance of success and to hopefully drive down interest rates.
There are a few different types of unsecured loans that you might be able to qualify for, depending on your credit score and the strength of your business. If you do qualify for a no-collateral loan, the lender may file a UCC lien which is a general lien against your business. This type of lien places a claim against your business in case your business is unable to pay its creditors.
Business Term Loans. Some lenders will offer new businesses a business term loan as a no-collateral business loan. A term loan is simply a loan that you agree to pay back over a set time limit, or term, and is what probably comes to mind when most people think about getting a loan. If the lender is a bank, then having a bank account at the lending institution often qualifies you for a slightly better interest rate.
Personal loans. If you have a good personal credit score, you may be able to qualify for a no-collateral personal loan from a bank or online lender. This can be a good option for financing some projects, but you’ll want to make sure you’re able to afford the monthly payments so that your business problems don’t come back on your personal finances. Ultimately, the loan terms will depend on your creditworthiness as determined by your income, personal assets (including real estate), and personal credit score. Many entrepreneurs turn to this type of loan to fund their first project because they do not have a history of successful business management to rely on.
Lines of credit. If you have a good business credit score, you may be able to qualify for a business line of credit from a bank or online lender. This can be a good option for short-term financing, as you only need to pay interest on the portion of the line of credit that you actually use. However, the interest rates on lines of credit are often quite high, so you’ll want to make sure you’re able to pay off the balance in full each month. You’ll also want to ensure that you have the cash flow available to make the payments each month.
Invoice financing. If your business has a lot of customers who pay their invoices slowly, you may be able to qualify for invoice factoring. This type of loan allows you to borrow against the value of your outstanding invoices (accounts receivable), and it can be a good option for short-term financing.
Merchant cash advances. If your business accepts credit card payments, you may be able to qualify for a merchant cash advance. This type of loan allows you to borrow against the value of your future credit card sales, and it can be a good option for short-term financing.
Equity financing. If your business is doing well and you have a good credit score, you may be able to qualify for equity financing. This type of loan allows you to borrow against the value of your business and can be a good option for long-term financing.
SBA loans. If your business is small, you may be able to qualify for a Small Business Administration (SBA) loan. These loans are backed by the Small Business Administration, and they often have very favorable interest rates. However, the application process for SBA loans can be quite lengthy, which can rule them out as an option if you need fast financing.
Peer-to-peer loans. If you have a good credit score, you may be able to qualify for a peer-to-peer (P2P) loan. Peer-to-peer loans provide funding from investors or peers, rather than banks or traditional institutions. These transactions can be fairly straightforward–just an interest rate and repayment terms and are often managed by online platforms.
Friends and family. If you have a good relationship with your friends and family, you may be able to convince them to invest in your business. This can be a great way to get funding for your business, but it’s important to remember that you’ll be putting your relationship at risk if things go wrong. You should only consider this option if you’re confident in your business and you’re sure you can repay the money, and if you know the relationships can stand it. As a rule of thumb, it’s best to have skin in the game yourself before asking friends and family for funding, as it shows you’re committed to success.
Business credit cards. You may not think of a credit card as a loan, but at the core of any credit card is the fact that you’re borrowing money from a lender and promising to pay it back, which is the basic definition of a loan. If you have a good personal credit score, you may be able to qualify for a business credit card with a decent limit, but keep in mind that these are best used for short-term purchases that you can pay off without accruing any interest.
These are just a few of the options available for small business loans without collateral. Be sure to do your research and talk to a financial advisor before you decide which option is right for you, as most of these options have higher interest rates than loans that require collateral, and will also have shorter repayment terms. As a result, you’ll be paying more money back at a faster rate than if you had put up collateral for a similar loan.
If you’ve tried to get a loan as a startup, you may have run into a conundrum: many loans require companies to be in business for at least two years and have a significant amount of proven annual revenue before they qualify for funding. So how can entrepreneurs secure funding for their startups?
Several of the financing options laid out above are open to new businesses, including some term loans, lines of credit, business credit cards, and of course, loans from friends and family. Alternative lenders like Biz2Credit may also offer additional funding types, depending on your needs.
If you’re wondering whether you can get an SBA loan with no collateral, the answer is that it depends on the specific loan program and the requirements of the lender. For example, you will not be able to get a real estate loan without providing collateral. But SBA 7 (a) loans do not require collateral if the loan amount is less than $25,000. Larger loans may require collateral depending on the lender, and in general, the SBA does encourage borrowers to pledge collateral if they have it available.
The best way to find out for sure is to talk to a few lenders about the specific requirements for each SBA loan program before you apply.
The size of the loan you can qualify for without collateral will depend on the lender and the specific loan program. Some lenders may be willing to lend you a larger amount of money if you have a good credit score or if you’re able to prove that you have a high probability of making good on your payments. But in general, the largest loans will require some form of collateral, as the banks have it in their best interest to protect the capital that they lend out.
If you’re approved for an unsecured business loan, you can use the funds for any business-related expenses that fit the terms of your loan. This can include things like start-up costs, inventory, equipment, marketing, or working capital. When in doubt, review the terms of your loan and talk to your lender.
When looking at small business funding options, most people start with traditional lenders such as banks or other financial institutions, but business lending is no longer limited to traditional lenders. There are a number of alternative lenders available to small business owners.
Online lenders tend to specialize in small business lending and have loan options tailored to the needs of small businesses. These lenders typically have more flexible requirements than traditional banks, and they may be more willing to work with businesses that don’t have collateral. They may also have more flexible standards when it comes to accepting credit history.
If you are in the market for a small business no-collateral loan, the experts at Biz2Credit can explain how loans work and help you navigate the application process. Many loans can be approved within 72 hours. Shinan Binns ran into Covid-related cash flow issues when reopening his studio and was able to get his business back up and running through funding he received from Biz2Credit.