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1. Know Your Options

2. Re-examine your business’s financials

3. A Personal Guarantee, UCC Lien or a

4. Review before signing

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4 Steps to Getting A Small Business Loan With No Collateral

The loan is readily available, but loan conditions and approval requirements differ widely

By Richard Best

Updated November 30 2022

Reviewed by Margaret James

If you require a small-business loan, whether to finance your next stage of expansion or to keep your business on solid ground during an unexpected crisis–one important thing to think about is whether you’ll be expected to bring collateral to the table.

Collateral is a form of an insurance policy for the lender in the event that you fail to repay the loan and can’t repay it due to any reason. If your business is short on assets that could be secured by a pledge, finding a no-collateral business loan might be your highest priority.

It’s easy to get business loans that do not require collateral as a condition for approval. Before applying to one of these loans, it’s important to do your research so that you know what to be expecting.

The most important takeaways

There are unsecured small business loans through the Small Business Administration and online lenders.

No collateral doesn’t mean that you don’t have to take on some degree of financial responsibility on your own for business loans.

Peer-to-peer lending is another alternative to pursuing business loans without collateral requirements.

Lenders might charge higher fees or rates for non-collateral business loans.

1. Learn about your options for no-collateral Business loans

The first step towards getting a business loan that does not require collateral is to determine what options are available. Non-collateral loans are provided by various lenders, but loan terms and approval requirements are often very different.

SBA 7(a) Loans

It is the Small Business Administration (SBA) provides loans for owners of small businesses through its network of partner lenders. There are several SBA loan programs you might look into if you require working capital, with one of them, the 7(a) program being one of the most well-known. The SBA 7(a) program doesn’t have to require collateral in loans that exceed $25,000, which is great when you need to borrow a lesser amount of money.1

For loans exceeding $350,000, the SBA obliges lenders to make collateral loans in the highest amount possible, as much as the loan amount. If you don’t have enough assets for your business to guarantee the loan the lenders may utilize the personal property that you own as collateral. However, having no collateral at all isn’t an obstacle to getting the 7(a) loan if you have the other requirements.1

SBA Disaster Loans

In addition to 7(a) loans, the SBA provides disaster relief loans for businesses that experience losses resulting from natural disasters, as well as economic turmoil. So, for example, a business that’s experienced losses as a result of a government mandate to shut down could request an economic damage loan.

The amount of the down payment required for an SBA loan can range from 10% and 30% but will vary based on the particular loan and borrower.2

Similar to 7(a) loans, disaster loans under $25,000 don’t require collateral. If you’re borrowing more than this amount, collateral will be required, however, as with 7(a) loans it’s not required. SBA won’t deny you the loan based on lack of collateral alone.3

Small Business loans that are online and other alternatives. Loans

Online and alternative lenders are able to provide a range of loans that do not require collateral to achieve your business’ working capital requirements. The kinds of loans you may be able to get without needing to offer collateral upfront are as follows:

Term The loan

Invoice Financing (also called “accounts payable financing”)

Inventory Financing

Merchant Cash Advance

Equipment Financing

Purchase Order Financing

Line of Credit

In these types of small-business loans, there may be some type of security required but it’s not money or another tangible item you need to provide. For instance, in the case of invoice financing, you’re using the outstanding invoices in order to obtain money.

With a merchant cash advance it is borrowing against the amount of your future receipts from your credit card. If you’re using finance for equipment, it’s the item you lease or purchase is used as collateral in the loan.

Peer-to-peer lending is a different alternative for financing small businesses that doesn’t require collateral. Peer-to-peer lending platforms connect investors with entrepreneurs who require loans. Investors pool funds to finance the loan, and owners pay back the same as any other loan and with interest. These loans are secured, which means there’s no collateral needed.

2. Examine Your Financials for Your Business to determine if You Meet the Requirements

Certain types of small-business no-collateral finance might be more difficult to obtain than other types. For one type of SBA 7(a) loan, for instance, you must have at least two years of operating history in your resume, be in compliance with the definitions of a qualified small-business and also have an acceptable credit score as well as the revenues SBA lenders look for. The SBA also insists that you explore all other borrowing options prior to applying for an SBA 7(a) loan.4

When it comes to alternative and online lenders However, with alternative lenders, the requirements may be more fluid. For example, a lower credit score isn’t an obstacle in obtaining an advance on a merchant’s cash account as well as invoice finance. In fact, it is possible to secure the initial loans via online or alternative lenders that require only six months of operational history.

The next step to get a business loan with no collateral requirements is evaluating your business and its financial health. This means that you must do things such as:

Verifying your personal and company credit scores

Update your balance sheet

Creating key financial documents, such as a profit and loss statement as well as cash flow statements

Examining your business’s costs and cash flow overall

The aim is two-fold: to assess the creditworthiness of an loan and also to determine the ability of you to repay it. Failure to pay back the loan could damage your credit score which makes it more difficult to obtain any type of credit in the near future.

Some types of no-collateral loans–such as a merchant cash advance or invoice financing–use factors rather than an interest rate to determine the amount of borrowing. Based on the terms of the loan and how quickly it’s repaid in terms of time, the factor rate could easily be converted into an inverse or three-digit effective APR.

3. Be Prepared for a Personal Guarantee or UCC Lien in lieu

Although you might be able to get a small business loan without needing to provide collateral, it doesn’t mean that the lender won’t require other conditions. Particularly, you might be required to make a personal guarantee or agree to an Uniform Commercial Code (UCC) lien.

A personal guarantee is what it sounds like it’s an agreement to personally repay the debt contracted by your business. Personal guarantees are usually required for no-collateral loans and credit cards for small businesses. Since the lender doesn’t have collateral it can attach when you fail to pay the debt, the guarantee grants it leeway to sue you personally in order to collect a unpaid debt.

A Uniform Commercial Code lien may be different. It is basically an umbrella lien that permits the lender to take possession of any or all of your business properties in case you default on the loan. In other words, even if you did not offer any collateral on the table to get the loan and a UCC lien could give the lender a backdoor option for attaching assets if you fail to pay.5

4. Consider the Terms Carefully Before signing

If you’ve submitted an application for a small business loan without collateral and have been granted approval, the next step is to be aware of the loan conditions and terms. When reading your loan document, you must pay attention on the rates of interest and annual percent rate (APR) as well as the repayment schedule, as well as the loan term.

It is important to be aware of the time it will take to pay the loan off, and also what the amount of debt is to when the fees and interest are included.

In terms of fees, you should check for the fees you’re being charged. For instance, that might include the loan origination fee or a prepayment penalty. If your cash flow allows you to pay off the loan in a timely manner, you shouldn’t have to incur an extra fee to do so.

Consider whether a personal guarantee or UCC obligation is needed in your borrowing agreement. While you may have the best intentions to pay back the loan but it’s crucial to be aware of how these obligations could affect your company if you’re unable to hold up your commitments in any way.

Is it difficult to get a Small Business A Loan?

It can be difficult to get a small business loan without a good personal credit score and evidence of regular income from your company. If you don’t have these documents, the risk of getting the loan is extremely high for lenders. In the event of a wide range of factors, loan offers may require collateral or high interest rates if the bank finds the profile of an applicant to be not to be solid. This can be a problem for the business. If you think your credit score or your business’s revenues are not sufficient enough and you are looking for financing by other means, such as money from friends and family or crowdsourcing, may be a better option.

Do SBA Loans Require a Down amount?

It is true that SBA loans do require an initial down payment. The down payment will vary depending on the specific loan and borrower; however, a common down payment is 10 percent. The amount could vary and even reach 30% in some cases.2

Are you able to use SBA to get loans for personal use?

SBA loans are not allowed to be used for personal purposes. The funds can only be used to fund your business. This includes financing the business’s expenses as well as expanding your business and also salaries, like your own. SBA loans cannot be used to pay down personal debts, such as your mortgage or credit card debts.

The Bottom Line

Finding a loan for your business can be a challenge, especially if you are required to put collateral on the line and increase the risk for you. The Small Business Administration (SBA) is a great resource for business owners . It can provide financing without the need for collateral.

In addition to the SBA companies may also be able to get loans with no collateral though it’s crucial to be aware of the terms prior to entering into the loan contract. The loans without collateral could have additional strict conditions or high interest rates. When deciding on a loan consider the parameters that work best for you and the business.


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