How to access business loan without collateral, When planning to start or grow a business, many owners are keen to find out how to obtain small business loans without collateral to fund their ideas. Unfortunately, when it comes to loans, there are two major types: unsecured and secured.
The primary difference between secured and unsecured loans is that a secured loan requires an asset to act as security. In other words, it’s a collateral business loan that requires you to put something up in exchange for financing (e.g., commercial real estate or a company car).
An unsecured loan is a no-collateral loan that has no such requirement. While some business loans are available that require no collateral, they are not as easy to find nor as readily available as a standard secured loan.
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Most small business loans, especially those guaranteed by the Small Business Administration, require the borrower to accumulate personal collateral. This gives the lender peace of mind in case the borrower is not able to return payment. But what if your small business doesn’t have any collateral yet to guarantee? You may be asking yourself, “can I get a loan without collateral” and wondering if an uncollateralized loan is out of your league. But wonder no more – there are, in fact, lenders out there who will provide you with funding even without collateral!
What is a Collateral-Free Business Loan?
Collateral means security or an asset that a lender requires from the borrower to guarantee the desired loan. Such security or investment is repossessed from the borrower after paying off the loan entirely. However, on defaulting the repayment, the lender seizes this asset, and they have the right to sell it to cover his losses.
Small businesses or startups don’t have many assets and can’t afford the risk to put up the same for a loan.
Collateral-free business loans are business loans that are free from any collateral funding requirements. As a result, businesses can get desired funds promptly and focus on their growth. These may be term loans ranging from 1-10 years or short-term business loans for regular business activities like staff remuneration or inventory handling.
Business Loan Eligibility Criteria without Collateral
To ensure quicker loan approval, here are the criteria you must meet to ensure that your application is reviewed as quickly as possible.
Register your business: Do not wait until you need a loan before you register your business. Has your business account been domiciled in your bank? When you already have an established business account running for the last period of 1 year. It will be easy to get a credit facility.
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Be specific on what you need the money for: You have to convince the lender that you will use the money for your business and not divert it to other things. For example, the funds may be needed to acquire new machines or pay for goods, among other things.
The amount you intend to borrow: Be specific on how much you want to borrow from the lender and repay plan. Collateral loan for small and medium businesses is usually between exceed $3,000
Guarantor: Because the lender is not requesting you to produce collateral, in most cases, it will demand a guarantor in case your business plan fails, and you are unable to repay the loan. Your guarantor is usually required to be working in a corporate organization, and he will show evidence of his financial worth in the form you will be given to fill.
Bank statement: You may be required to present recent bank statements to show your business is still operating and the period of its operation.
Types of Loans to consider without collateral
If you’re looking to get a non-collateral business loan for your startup or established small business, there are a few options to consider. These include:
An SBA loan is backed by a federal agency, the Small Business Administration. This type of loan may or may not require collateral, and even new startups may get a loan with no need for collateral via an approved SBA lender. There are, however, other SBA loans that will require collateral, so it’s essential to check before signing.
Online long-term loans
Many online lenders offer short-term and long-term loans to companies. While both are “term loans,” there are some key differences to keep in mind.
For starters, a long-term loan is more traditional. The lender will advance a specific sum that will be repaid monthly over a set period. Though generally not as affordable as SBA loans, they are relatively inexpensive, and applying is often faster and easier.
On the other hand, a short-term loan also involves advancing a lump sum to the borrower, but this is then repaid in weekly or daily payments for a short period of around three to 18 months. This type of loan is usually more expensive, although it has relaxed eligibility requirements. However, it is also straightforward to apply for when compared with traditional bank loans.
Merchant cash advances (MCAs)
Although merchant cash advances appear to require collateral, they do not. The financing company will only be buying your future assets—nothing you own right now.
When a business receives a merchant cash advance, the financing company advances a specified sum that is then paid back using a particular percentage of sales. In essence, it is purchasing a portion of the company’s future sales.
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The eligibility requirements for this type of lending are comparatively loose, but there could be a risk to cash flow. Therefore, it is essential to proceed with caution when choosing this option since many MCAs involve complex contracts and various fees.
Business credit cards
Business credit cards are sure to be something you are already familiar with. However, they are a surprisingly good way of financing a business—especially when supplementing a traditional loan.
A zero percent introductory APR card is typically the best option since this is essentially an interest-free loan that lasts for the specified initial period. This will vary by card and could be as long as 15 months.
If you choose this option, having a clear repayment plan is essential since you will need to pay off the balance before the introductory period ends and the regular APR kicks in.
Private lenders and fintech firms
These days, there are a lot of private lenders out there who are willing to offer loans without collateral, as long as the business owner provides a personal guarantee. This could be in the form of a cosigner, an asset, or a commodity. Although, strictly speaking, this is not quite an unsecured loan, there are many more options for the items or purchases that you can use.
Innovations in technology have contributed to the emergence of new fintech firms, providing access to financing quickly and with relatively little paperwork.
With Fundbox, you can apply for financing online without any specific collateral and expect a credit decision in just minutes.