Business Loans

Small Business Loans With No Collateral: What Are Your Options?

Oct 26, 2023 • 10+ min read
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      A traditional business loan can be difficult to get without collateral. Many lenders may be unwilling to approve you for a business loan unless you can offer some sort of asset—such as real estate or equipment—which you agree to surrender if you’re unable to repay the funds you borrow. 

      However, not all borrowers have assets to provide as collateral. And even those who have available assets they could offer to secure loans might not want to use them.

      Read on to learn more about startup business loans you can get without collateral. These loans have the potential to help you turn your business startup dreams into reality without putting your personal and business assets at risk to secure financing.

      What are business loans with no collateral? 

      A business loan with no collateral is a funding option for which you don’t need to pledge an asset that a lender could seize if you fail to repay the debt. Another term for this type of financing is an unsecured business loan

      It is important to point out that the lender’s risk is higher with an unsecured loan since it has no assets to take possession of in the event of a default. Because no collateral business loans involve more risk for lenders, these loans tend to be less common. And when you find lenders that offer these loans, they also tend to cost more. Business loans with no collateral may feature higher interest rates and fees compared with other business financing options

      Even without collateral requirements, you may still have to provide a personal guarantee when you take out an unsecured business loan. A personal guarantee is an agreement between you (the business owner) and a creditor stating you agree to repay a debt yourself if your business fails to do so. In essence, a personal guarantee makes you a co-signer when your business borrows money. 

      Startup business loan options with no collateral.

      Below are some options to consider if you’re looking for a business loan with no collateral.

      SBA microloan

      There are numerous types of SBA loans that business owners can seek when they need financial assistance. Almost all of these loans require some sort of collateral. However, the SBA offers microloans that do not require collateral. Instead, they require a personal guarantee.

      Microloans are available for up to $50,000. But the average microloan a business receives is around $13,000. You can use an SBA microloan to purchase inventory, supplies, equipment, furniture, or machinery, to fulfill working capital needs, and more. 

      Unsecured business line of credit

      An unsecured business line of credit is a flexible financing solution that your business can rely on multiple times. With a revolving business line of credit, you can borrow up to the credit limit on your account, repay some or all of the money borrowed, and access the credit line again. This setup differs from a traditional business loan where you receive the loan proceeds you borrow in a single disbursement, but lack the ability to borrow again from the same source in the future. 

      You do not have to provide collateral for unsecured business lines of credit. However, many lenders require a personal guarantee. 

      Unsecured business term loan

      While uncommon, some banks and online lenders offer unsecured business term loans. These loans will typically still require a personal guarantee and will have more stringent qualification criteria including a longer minimum time in business requirement.

      Alternative financing options.

      Aside from the options mentioned earlier, alternative financing methods can offer a practical solution for business owners in need of capital.

      Equipment financing

      An equipment loan or equipment leasing is a collateral-based loan. In general, the equipment you purchase serves as some or all of the collateral. In the case of equipment leasing, only the equipment being leased is used as collateral with no prior existing asset required. 

      For many business owners, this arrangement feels very different from a loan that uses the borrower’s personal property as a guarantee or asks for additional business assets as collateral. Yet the lender can still reduce its risk with this type of loan since there is an asset to seize and resell in the event of a default. 

      Invoice factoring

      Technically, invoice factoring does require collateral, but instead of putting up real estate or personal assets, the lender accepts your unpaid invoices as collateral. This type of financing can be easier to qualify for since the creditworthiness of your customers, rather than you or your business, is a major factor in the approval process. 

      With invoice factoring, a lender advances you money against your unpaid invoices. Then it collects payments from your customers on those invoices and remits the balance minus its fees to you.

      Inventory financing

      Similar to invoice factoring, inventory financing uses your business’s inventory as collateral instead of requiring you to secure your loan with other assets. With inventory financing, you can receive a loan or line of credit to purchase more inventory, expand your business, increase cash flow, and more.

      The lender will assess the value of the business’s existing inventory through a process known as auditing. They’ll look into aspects like the type of inventory in question, its market value, its scalability, its condition, and its age. Based on this audit, the lender determines the amount they are willing to lend.

      Business cash advance

      A business cash advance refers to a type of financing you can use to borrow against future revenue that your business will earn. With a business cash advance, a lender provides you money up front and takes repayment via an automatic deduction of a percentage of your business’s future sales. 

      Your company might be eligible for this type of financing once it has at least four to six months of acceptable revenue history that a cash advance provider can review. And while a business cash advance can be more expensive than a traditional business loan, this financing solution could work well for a startup with no collateral and even those without good credit. 

      Alternatives to business loans with no collateral.

      As a business owner, you may need various types of startup funding to achieve your goals. Here are four alternatives to collateral-free business loans to consider.

      Business credit cards

      A small business credit card is another financing option that can benefit startups and established businesses. It offers perks such as building business credit, separating personal and business finances, and providing short-term cash flow solutions. Depending on the account type, you may earn rewards or cash back on necessary business purchases.

      If your personal credit score is 690 or higher, you may qualify for an unsecured business credit card without a cash security deposit. Note that most business credit card issuers require a personal guarantee from the business owner.


      Small business owners with strong social networks might consider crowdsourcing to raise money for their startup goals. Crowdfunding allows small businesses to raise funds from multiple investors or donors without repayment obligations.

      Unlike a loan, crowdfunding doesn’t require collateral. However, other considerations exist when using rewards-based, donor, or equity crowdfunding for business funding.

      Personal savings

      The majority of startups don’t seek financing. According to the SCORE Foundation, powered by the SBA, 78% of startups rely on personal savings or income from another job. 

      If you decide to use personal funds to start a new business, it’s important to exercise caution. Draining emergency savings or retirement funds is risky. So, you should consider how you might cope if you lost those funds and make sure you have a plan that you can live with before moving forward with such a high-risk investment.

      Requirements for a startup loan without collateral.

      To qualify for a business loan with no collateral, you will need to meet the lender’s eligibility criteria. Some factors that lenders may consider are your credit score, time in business, revenue and cash flow, debt-to-income ratio or EBITDA margin, personal financial strength, industry risk level, and how you plan to use the funds.

      Since the loan is unsecured the lender may also require the following to help reduce their risk:

      Personal guarantee

      Instead of putting assets at risk to start your business, some lenders may accept a personal guarantee from the business owner as added security when you apply for startup funding. A personal guarantee states that you as the individual will be responsible for the loan in the event that your business cannot repay the debt.

      A personal guarantee can be valuable to a lender if you have existing credit and personal assets. A high credit score indicates to lenders that you are trustworthy and likely to repay the money you borrow as promised. 

      Blanket UCC lien

      A blanket UCC lien states that if your business defaults on its loan, the lender can seize all of its assets—including equipment and accounts payable. A blanket UCC lien lets you use your entire business as collateral, even if you haven’t built it yet. 

      There is, of course, risk involved when you agree to a blanket UCC lien. If you can’t repay a business debt, the lender might decide that it’s better off taking money you have in the company and selling your equipment rather than continuing to wait for you to make another payment. 

      Adjusted loan terms

      If you’re struggling to find unsecured loans on your desired terms, consider changing your expectations. Look for ways to reduce the lender’s risk, so they are more likely to approve your funding application. 

      In general, lenders see shorter term lengths as less risky since they get their money back sooner and there are fewer potential events that could lead to a default. 

      If you are still hitting roadblocks during the loan application process, consider taking out a smaller business loan. For example, instead of requesting $30,000 in business financing, you could ask for $5,000.

      Next steps 

      At Lendio, our job is to help businesses find the right financing at the best rates. If you are looking to fund your startup, turn to our lending center. Learn about your options for taking out a small business loan without putting your assets up as collateral.

      Quickly compare loan offers from multiple lenders.

      Applying is free and won’t impact your credit.

      The information in this blog is for informational purposes. It should not be used as legal, business, tax, or financial advice. The information contained in this page is Lendio’s opinion based on Lendio’s research, methodology, evaluation, and other factors. The information provided is accurate at the time of the initial publishing of the page (October 26, 2023). While Lendio strives to maintain this information to ensure that it is up to date, this information may be different than what you see in other contexts, including when visiting the financial information, a different service provider, or a specific product’s site. All information provided in this page is presented to you without warranty. When evaluating offers, please review the financial institution’s terms and conditions, relevant policies, contractual agreements and other applicable information. Please note that the ranges provided here are not pre-qualified offers and may be greater or less than the ranges provided based on information contained in your business financing application. Lendio may receive compensation from the financial institutions evaluated on this page in the event that you receive business financing through that financial institution.

      About the author
      Michelle Lambright Black

      Michelle Lambright Black is a nationally recognized credit expert with two decades of experience. Founder of—an online community that helps busy moms take control of their credit and finances—Michelle's work has been published thousands of times by FICO, Experian, Forbes, Bankrate, MarketWatch, Parents, U.S. News & World Report, and many more.

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