Without collateral, a traditional business loan can be hard to get. A bank usually requires some sort of asset – such as real estate or equipment – which you must surrender if you were to default on the loan. This bank requirement can be frustrating for business owners who are just starting out or who do not own any assets. Business loans with no collateral are especially difficult to get for those with bad credit scores. And, even more, difficult if you need the funds quickly.
Despite this difficulty, there are, in fact, many ways to get alternative business loans.
Types of Non-Collateral Business Loans
The key to getting a business loan without having collateral is to go through the alternative lenders. These lenders offer a few types of loans:
Merchant cash advance: if you have monthly credit card sales, a lender can give you working capital ahead of time, based on your predicted future sales volume. To pay off this loan, the lender simply deducts a percentage of your sales each day until the amount is paid.
Accounts receivable financing: similar to a merchant cash advance, this loan type gives you working capital ahead of time, based on upcoming payments from your customers’ accounts. This helps you buy whatever necessary inventory or resources you need to fulfill those future accounts (or purchase orders).
Equipment Loan: Technically, an equipment loan is a collateral-based loan because the equipment itself, once it is purchased, is used as collateral. However, many alternative lenders still offer this type of loan because the collateral is not considered the borrower’s “personal guarantee.”
Pros and Cons of Alternative Loans
The one downside to the alternatives is their rates. Because they are taking on more risk they must charge a higher interest than a bank.
However, alternative lenders are still very valuable to many business owners. For one, it takes a lot less time to get an alternative loan than it does to get a bank loan. A bank can take 1-2 months to give you an answer while an alternative lender can make a decision in just a few days. Plus, alternative lenders are less focused on credit score and collateral and more focused on cash flow, which makes sense when you think about it: after all, your ability to pay back a loan should be based on verifiable future income, not your historical mishaps (or lack of history thereof).
If you are interested in getting a business loan without collateral, here’s where you can find your options. Answer a few questions, and we simply match you to business loans with the best rates.