Best Options For Small Business Loans With No Collateral

Are you planning to take out a business loan so you can scale your business?

Business loans are insanely powerful tools that can get you the necessary funds to expand your businesses really quickly, buy equipment or inventory, or ingest the necessary cash flow for everyday expenses.

Most small business loans, especially secured loans, require borrowers to put up collateral to show they are serious about repaying the loan.

However, most startups struggle to present valued collateral, which is one of the main reasons why your business loan was denied.

“But, can you get financing without collateral?”

With over twenty-five years of experience as a financial coach and banking expert, I’ll give away the best options for small business loans with no collateral.

Stick with me, and I’ll not only show you easy steps to getting that sweet funding you need, but I’ll also present other alternative financing options that small business owners like you can qualify for so you can quickly and easily scale your business and make millions with investments like real estate.

What Are Business Loans With No Collateral?

A business loan that doesn’t require collateral is a great financing option where borrowers don’t need to pledge a valuable asset that lenders may collect if they cannot repay the loan.

These types of business loans are also known as unsecured business loans. In an unsecured business loan, lenders’ risks are higher.

If you’re applying for these kinds of loans, expect higher fees, interest rates, and stricter loan terms than traditional loans and other alternative financing options.

Keep in mind that even though you’re not required to offer collateral, some of these loans may still require you to provide a personal guarantee when taking out their unsecured business loan.

A personal guarantee is an agreement where you (the borrower) will assure the lender to repay the debt yourself using your own finances, making you a cosigner of the application.

Options for a small-business loan without collateral

The following are forms of funding that don’t require traditional forms of collateral. Keep in mind that when lenders don’t have traditional forms of collateral, they will look for other risk mitigants, like a personal guarantee or a Uniform Commercial Code lien.

A personal guarantee gives lenders a legal right to your personal assets if you default on loan payments, while a UCC lien gives lenders generalized access to all or a portion of your business assets.

Online Loans

If you’re looking for business loans that don’t require collateral, your first option is to look online.

Generally, online loans are easier to qualify for and provide quicker funding than banks and SBA loans, but they usually cost more and tend to have higher fees and interest rates.

Although not all online loans don’t require collateral, you probably still need to sign a personal guarantee.

Online lenders can be very helpful for business owners who don’t meet the requirements of traditional lenders like banks but have a good credit score and have been in business for more than six months.

Online loan requirements tend to be more relaxed, which is why many startup business owners with fair or bad credit love to apply for these types of loans.

Unsecured Loans (Term Loans and Business Line Of Credit)

Even though these loans are uncommon, some banks and lenders still offer unsecured term loans.

These loans often require a personal guarantee and may require stricter qualifications than others.

On the other hand, some banks offer unsecured business lines of credit.

Some banks offer unsecured loans through business lines of credit.

A revolving business line of credit will help you borrow funds (with a credit limit), repay the debts, and access the credit line again.

This allows you to borrow funds from the same source in the future, so you won’t have to apply all over again.

Banks can offer unsecured financing through term loans or business lines of credit that range from $5,000 to $100,000.

Furthermore, applying for loans through a bank will most likely be more time-consuming than applying online.

SBA Microloans

Business owners can check out many types of Small Business Administration loans (SBA loans) when they need funding.

However, almost every SBA loan requires some sort of collateral.

But don’t lose hope since SBA microloans do not require collateral but instead require a personal guarantee.

SBA Microloans are available for up to $50,000.However, the average microloan business gets about $13,000.

You can use this financing to buy supplies, inventory, or equipment your business needs.

Merchant Cash Advances

With merchant Cash Advances (MCA), your business can get revenues in advance based on your past income.

Instead of collateral, MCAs or business cash advances usually look for businesses with good or strong cash flow.

A merchant cash advance’s main focus is your business’s future sales, not your collateral or credit score when deciding whether to approve or deny your loan application.

Business Loans Without Collateral Requirements

Although the loans above won’t require you to offer collateral, lenders will still have different requirements you’ll need to present.

Remember that every lender is unique, and they may differ in requirements.

Here are a few requirements unsecured business loans may request to protect the lender:

Personal guarantee: As I mentioned earlier, you’ll probably need a personal guarantee if you can’t offer any collateral for your business loan. A personal guarantee is riskier for you but shows lenders you’re serious about repaying the loan.
UCC lien: A UCC lien or Uniform Commercial Code lien is needed for these types of loans because it’s crucial in collateralizing any assets your business may acquire during the loan’s life.

Time in business: Lenders may require you to be in business for at least six months to a year.
Personal and Business Credit Score: When applying for loans, lenders often check your personal and business credit scores. Most lenders, especially traditional ones, require borrowers to have a personal credit score of 600 or above. However, online lenders can go as low as credit scores of 500 and below.
Annual revenue: Lenders want to work with businesses with a strong yearly revenue.

Benefits of Business Loans With No Collateral

Applying for business loans that don’t require collateral can offer business owners a few advantages.

Here are a few benefits of no-collateral business loans:

Faster Approval: Business loans without collateral are generally quicker than secured loans, allowing you to access the funds faster.
Flexibility: Business loans with no collateral can give you more flexibility on the loan amount compared to secured loans, where borrowers usually receive 70 to 80 percent of the value of the collateral.
Easier to Use: A no-collateral business loan can generally be used for any reason, like covering payroll, scaling your business, and purchasing equipment, which can potentially help you boost revenue and cash flow.
Building Your Credit: Making on-time payments can improve your credit history. A higher credit score can help you get approved for the best loans with lower interest rates and better terms.

5 Easy Steps To Get A Small Business Loan Without Collateral

Research thoroughly: Find your preferred lender that offers unsecured business loans. You can choose between the options above: online lenders, unsecured loans, SBA microloans, and MCAs.
Check Other Requirements: Once you’ve decided, check their websites for other requirements that you need. For instance, most lenders require a minimum time in business, annual revenue, and check your credit score.
Review Loan Repayments: Evaluate your loan repayments and create a budget that ensures you’ll be able to repay your debts.
Prepare Business’s Financial Documents: Have your business plan, financial statements, profit and loss statements, balance sheet, and more when applying for a business loan.
Submit your Application: Depending on the type of lender you choose, you might need to apply in person or online. Remember to double-check your information when filling up your application.

Other Alternative Financing Options For Small Business Owners

Business credit cards

Business credit cards are a great alternative financing option if you can’t get approved for secured or unsecured business loans.

Startups can benefit from this type of financing since it also offers various perks like rewards or cash back on business purchases.

Having a good or excellent credit score can qualify you for the best unsecured business credit card that doesn’t require collateral or a security deposit.

However, remember that lenders may require a personal guarantee from the borrower.

Crowdfunding

Nowadays, there are now

Crowdfunding websites like Indiegogo and Kickstarter can help you strengthen your social networks and get the funds you need for your small business.

Crowdfunding helps entrepreneurs raise funds for their businesses without repaying them since these are funds gathered from donations.

Like the financing options above, crowdfunding will not require collateral. Instead, you can offer your donors special rewards or early access to your product.

Equipment Financing

Equipment financing works similarly to auto financing.

An auto loan is secured by the car you’re purchasing, meaning you don’t need to offer any collateral before you get the loan.

In equipment financing, the equipment you buy for your company will serve as collateral for your loan.

Invoice financing

Lastly, invoice financing is where your business’s unpaid invoices will act as the collateral for the loan.

Invoice financing companies will fund you a percentage of your business’s unsettled invoices.