Starting a new business can be tough, especially with the current global recession. Lenders don’t agree to give loans to businesses unless they’re offered collateral(s). Collateral is an item that is offered to the lender as a guarantee that you will pay back the loan, i.e., in case of a default, the lender has the right to take possession of the asset. However, high startup costs need financing to get rolling.
For established businesses, it’s easy to get loans without collateral. Budding entrepreneurs can spend their time planning and executing their plans to convince lenders to offer them loans without collateral.
Business Loans That Don’t Need Collateral
Convincing a lender to lend money to a budding entrepreneur is difficult. Lenders would want to see the success history, i.e., how consistent the income levels are, to make sure that the loan-receiver isn’t a risky applicant. Lenders prefer to keep collateral to reduce the risk of their loan.
Business loans that don’t require any collateral allow companies to make large purchases and finance the startup. Such funds are usually offered in a lump sum amount but have to be repaid with interest. There are various other types of fundraisings for small businesses, such as merchant cash advances, lines of credit, and invoice financing.
Personal Guarantee For Loan Approval
If you want to apply for a business loan that doesn’t need collateral, you must sign a personal guarantee form. If you become a defaulter, the lender can seize your personal assets to recoup their money.
Loans For Startup Businesses With No Collateral
Starting a new business requires a huge amount of finance. You can consider the following options for business finances that don’t require collateral:
1. SBA Loans For An Amount Less Than $25k
If you don’t want a huge amount to start your business, then a Small Business Loan of under $25k is a viable option to consider. These kinds of loans usually offer the most friendly terms and lowest rates compared to other options. This is because the SBA guarantees a portion of the loan payback. So, even if you default, the lender can cover p some of their losses.
2. Online Startup Loans
Traditional finance institutions are usually very hard on new startups; however, you can find online lenders to cover your startup cost. You should keep in mind that the cost of such loans is on the higher side.
3. Merchant Cash Advances
A merchant cash advance is a loan usually paid in a lump sum amount, just like other forms of loans. Here, you agree to pay back the amount in advance along with the credit transaction rate upon which the deal was sealed.