Just like when you apply for a personal loan, automobile loan, or mortgage loan, applying for a business loan comes with a long list of required documents to prove creditworthiness and loan viability. For a business owner to acquire a business loan, they must meet certain eligibility requirements, and these requirements may differ depending on the type of loan, amount, and term of the loan. They may even differ for different lenders.
Many lenders require collateral for loans, especially when the loan is for a large amount of money. Collateral helps to limit the risk of lending to a business. If a business owner fails to repay a loan, that debt becomes bad debt on the lender’s balance sheet, and that’s not good. Collateral can be liquidated to help repay the debt.
Types of collateral often accepted by lenders include business equipment, real estate owned by the business, inventory, cash, and even personal assets of a business owner.
One question often asked by business owners is, “Can I get a loan without collateral?” And the short answer is ‘Yes.’ There are options available. If you are seeking a business loan without collateral the following information will help determine if your business is eligible.
Is my business eligible for a business loan with no collateral?
Supplying collateral for a business loan can improve chances for loan approval. It’s safer for the lender to loan money that can be repaid even it means liquidating the collateral. However, there are funding options available that don’t always require collateral.
- SBA 7(a) Loans
- Term Loans
- Merchant Cash Advances
- Business Line of Credit
- Business Credit Card
Let’s look at each of these separately.
SBA 7(a) Loan
An SBA 7(a) Loan is a loan product offered by the Small Business Administration. It’s the administration’s primary program for providing financial assistance to small businesses. There are several different types of SBA 7(a) loans, each with varying terms and conditions, guaranty percentage and loan amounts. The SBA 7(a) standard loan does not require collateral for loans up to $25,000. While there is no collateral required for loans up to this amount, businesses may be required to provide a loan deposit of 10% or more and may be given a higher interest rate.
SBA loans are sometimes more difficult to obtain than a conventional loan because the business owners typically need to have a strong credit score and provide financial statements and other documents.
A term loan offers a lump sum of funding over a specific term. Businesses typically use short term loans to cover an immediate spending need, such as for a repair, or business taxes, or payroll issue. Long term loans are generally used as an investment for business growth. Examples include launching a new product, opening a new location, or consolidating high-interest debt.
Many lenders offer term loans, and some may offer no collateral term loans. If you are seeking a term loan with no collateral, your best option may be an online lender as they can be less restrictive.
Merchant Cash Advances
A Merchant Cash Advance isn’t really a loan. Your business is securing a cash advance from a lender based on your predicted future credit card receipts. The loan is set up so that a certain percentage of all credit card receipts go directly to the lender toward repaying your cash advance. There is no collateral required and no down payment. This option is a good option for new businesses that have not yet established credit.
Business Line of Credit
A business line of credit is similar to a credit card where you have a revolving line of funds that you draw upon when needed. Banks, lenders, and online lenders offer business lines of credit without collateral or a deposit. Like a credit card, the percentage rate is often higher than a secured loan.
A business line of credit can be more difficult to secure if you are not offering collateral. Your lender may require that you be in business for a certain amount of years and have reached a certain annual revenue before you can apply.
Business Credit Card
A business credit card might be the best option for a new small business because you can avoid high interest fees if you pay off the monthly balance each month. Credit cards also often offer rewards like cash back and other savings depending on how much you use the card. These funds are easy to apply for if you have solid personal credit and can even be used to help launch a new business.
If you are seeking a no collateral business loan for your business, it’s best to talk with a specialist. Loan specialists have access to many different products and can present your best options. If you’ve got a minute, complete our short form to find out what loan options are available to your business.