Most entrepreneurs don’t have collateral or do not want to secure their business loans with their personal assets such as their home or savings accounts. Many small business loans such as those guaranteed by the SBA Small Business Administration require borrowers to pledge their personal collateral. This often stops many would be new business owners. Have no fear I found four rock-solid sources for business loans with no collateral required.
If your business does not have any collateral to guarantee a business loan how can you get funds to start a business? The answers to your question, “can I get a loan without collateral” is detailed below. There are many lenders and loan options for startup and working capital.
I recommend Kabbage business line of credit and small business loans because they do not require collateral to use as security for your business line of credit. There are also other collateral free options for small business loans, read on business owner
SBA Small Business Administration Backed Loan
Banks loan businesses money and it is guaranteed by the SBA. Sure it is easier to get approved for an SBA loan if you pledge collateral but that is not the only way. Many SBA business loans are approved by the personal guarantee of the business owner. This means that if your business fails you agree to pay the loan back in full with your personal assets. The SBA 7(a) loan program only requires that the borrower be able to show positive cash flow to make loan repayment to be approved. Once you are accepted into this SBA program they will guarantee, or back, up to 75% of any loss to the bank due to loan default.
“The 7(a) Loan Program is SBA’s primary program for helping start-up and existing small businesses, with financing guaranteed for a variety of general business purposes. SBA does not make loans itself but rather guarantees loans made by participating lending institutions. In this way, taxpayer funds are only used in the event of borrower default. This reduces the risk to the lender but not to the borrower, who remains obligated for the full debt, even in the event of default.”
Alternative Lenders Online
Due to the demand of business owners wanting capital loans without collateral, many new lenders have entered the marketplace online. Most of these business loan sources do not require any collateral to be pledged as security. My favorite, Kabbage only asks that you give a personal guarantee to repay the loan, which is only fair.
Types of Alternative Financing Business Loans
- Term Loan – The traditional loan type where you borrow a lump sum and then pay it back over about 4 years with predetermined monthly loan repayment amounts. Your annual percentage interest rate is set at the time of loan approval.
- Business Line of Credit (LOC) – Amount of credit limit approved for you to access when needed for short-term financing and to help gaps in cash flow. Used as working capital. More information about business line of credit
- Invoice Factoring – Sometimes called invoice financing or accounts receivable financing is a great option for those small businesses with unpaid customer invoices. Lenders, called Factors, advance you cash based on the total amount of those invoices. You repay the factors when your customer pays their invoice and then send fees to the factor for the cost of capital. Read all about invoice factoring and how it works here
- Peer to Peer Loans (P2P) – Operating outside of traditional banks individuals come together to give unsecured business loans to you based on your business plan. Check out this free business plan software online that I recommend.
The top site for business peer to peer lending is Lendio. Many of my clients have gotten access to needed capital easily and at a good price.It is super easy to apply online and applying does not affect your credit since they directly match you to the best business loan options for your situation from their large network of their lenders.
Sometimes P2P financing has higher interest rates and shorter repayment terms. However, many businesses cannot get approved for traditional SBA nor bank loans.