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1. Know Your Options

2. Re-examine your business’s financials

3. Personal Guarantee or UCC Lien

4. Review before signing

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4 Steps to Get an SBA Loan without Collateral

The loan is available, but loan terms and requirements for approval are not the same.

By Richard Best

Updated November 30 2022

Review by Margaret James

If you require a small-business loan, whether to finance your next stage of growth or to keep your business on solid ground in case of an emergency, the first thing to consider is whether you’ll be expected to bring collateral on the table.

Collateral acts as security against the lending institution in the case that you are in default on the loan and can’t pay it back for any reason. If your company is in deficit on assets that could be pledged as security, finding a no-collateral business loan may be your top priority.

It’s not difficult to locate businesses loans that don’t require collateral as a condition for approval. Before you apply to one of these loans, it’s important to do your research so you know what to expect.

The most important takeaways

You can find uninsured small business loans via the Small Business Administration and online lenders.

No collateral doesn’t mean that you’re not required to assume some level of personal financial responsibility in relation to business debt.

Peer-to-peer lending is a different option to pursue business loans without collateral requirements.

Some lenders may charge higher fees or interest rates for no-collateral business loans.

1. Know Your Options for No-Collateral Business loans

The first step to get a business loan that doesn’t require collateral is to understand what options are available. The no-collateral loans are provided by various lenders, however loan terms and conditions for approval can be very different.

SBA 7(a) Loans

It is the Small Business Administration (SBA) offers loans for owners of small businesses through its network of lenders. There are a variety of SBA loan programs that you could consider when you need working capital, with the 7(a) program being one of the most sought-after. It is the SBA 7(a) programme does not have to require collateral in loans that exceed $25,000, which is great when you need to borrow a smaller amount of money.1

For loans exceeding $350,000 The SBA requires lenders to collateralize loans to the greatest extent feasible, which is as much as an amount equal to the loan amount. If you don’t have enough business assets to be able to secure the loan, lenders can make use of the real estate you own as collateral. However, having no collateral whatsoever isn’t a barrier to getting a 7(a) loan if you satisfy the other requirements.1

SBA Disaster Loans

Alongside 7(a) loans, the SBA provides disaster relief loans for companies that suffer loss due to natural disasters, as well as economic turmoil. So, for example the business that has suffered losses as a result of a government directive to shut down might request an economic damage loan.

The amount of the down payment required of an SBA loan could be anywhere between 10% and 30% but will depend on the specific loan and borrower.2

Like 7(a) loans, disaster loans that are less than $25,000 don’t need collateral. If you’re borrowing over the amount of $25,000, collateral is not required, but again it’s not required. SBA will not refuse you a loan based on lack of collateral alone.3

Small business loans online and alternative Loans

Online and alternative lenders are able to provide a range of loans with no collateral requirements to help you achieve your business’ working capital needs. The types of financing you could be eligible for without the need to put up collateral upfront are as follows:

Term Loan

Invoice Financing (also known as «accounts payable financing»)

Inventory Financing

Merchant Cash Advance

Equipment Financing

Purchase Order Financing

Line of Credit

For these kinds of financing for small businesses There may be some type of security required but it’s not cash or another physical asset you have to offer. For example, with invoicing financing, it’s using your invoices that are due to be paid to borrow money.

With a cash advance for merchants, you’re borrowing against the amount of future credit card transactions. And in the case of finance for equipment, it’s the item you lease or purchase is used as collateral in the loan.

Peer-to peer lending is another option for small-business financing that does not require collateral. These lending services connect potential investors to small-business owners who need loans. Investors pool their funds to pay for the loan, and owners repay it in the same way as any other loan and with interest. These loans are secured, which means there’s no collateral needed.

2. Review Your Business Financials to determine if You Meet the Requirements

Certain types of no-collateral small-business financing may be more difficult to qualify for than other types. With the SBA 7(a) loan, for instance, you must have at minimum two years of operating history under your belt, meet the definitions of an eligible small business, and have the minimum credit score and revenue SBA lenders require. The SBA also demands that you explore the other options for borrowing before applying for an SBA 7(a) loan.4

With online and alternative lenders, on the other hand the requirements are more flexible. For example, a lower credit score isn’t an obstacle to obtaining an advance on a merchant’s cash account or invoice financing. In fact, it is possible to secure start-up loans from alternative lenders or online that require only the requisite six months of operating background.

The next step to get a business loan without collateral requirements is to evaluate your company and its overall financial position. That means doing things like:

Examining your personal and business credit scores

Update your balance sheet

The creation of key financial documents, such as an income and loss statement and the cash flow statement

Checking your business expenses and overall cash flow

The goal is twofold: to determine the creditworthiness of the loan and also determine your ability to repay it. Failing to repay the loan can affect your credit score, making it more difficult to obtain any type of credit in the near future.

Some loans with no collateral such as a cash advance for merchants or invoice financing—rely on a factor rate rather than an interest rate to calculate the cost of borrowing. Based on the terms of financing and the time it takes to repay in terms of time, the factor rate could easily translate to a two- or three-digit effective APR.

3. Be prepared for a Personal Guarantee or UCC Lien Instead

While you may be qualified for a modest business loan without having to offer collateral, it does not mean that the lender will not request additional conditions. In particular, you could be asked to provide a personal guarantee, or consent to the Uniform Commercial Code (UCC) lien.

The term «personal guarantee» is what it is it’s an agreement to personally pay off the debt taken on by your business. Personal guarantees are often an essential requirement for non-collateral loans as well as small-business credit cards. Because the lender does not have collateral that it can attach to when you fail to pay the debt, the guarantee grants it the ability to sue you directly to recover a debt that has not been paid.

The Uniform Commercial Code (CC) lien can be different. This is essentially the term used to describe a blanket lien, which permits a lender to attach any or all of your business property in the case that you fail to pay a loan. Even if you didn’t provide any collateral to the table in order to obtain the loan and an UCC lien would give the lender a backdoor option for attaching assets if you fail to pay.5

4. Be sure to read the terms carefully before Signing

If you’ve applied for a small business loan with no collateral and been approved, the last step is to understand the loan terms and conditions. When reading the loan agreement, pay attention to the interest rate, the annual percent rate (APR) as well as the repayment schedule, as well as the loan duration.

You must know how long it will take you to pay off the loan off and what your amount of debt will amount to when fees and interest are factored in.

Speaking of fees, check to see which fees you’re paying. It could comprise a loan origination fee or prepayment penalty. When your financial situation allows you to pay off the loan in a timely manner, you shouldn’t want to pay penalties to make it happen.

Consider whether you need a personal guarantee or UCC lien is required in your borrowing agreement. While you may have the best intentions to repay the loan but it’s crucial to be aware of how these obligations could affect your business if you’re unable to hold up your end of the bargain regardless of the reason.

Is It Hard to Get a Small Business Do you need a loan?

It can be difficult to get a small business loan without a high personal credit score and evidence of regular income from your company. If you don’t have these documents, the likelihood of granting a loan is extremely high for a lender. Based on a range of aspects, loan offers may require collateral or higher rates of interest if the bank deems an applicant’s profile less than solid. These requirements may strain a business. If you feel you have a poor credit history or your business’s profits aren’t enough and you are looking for financing by other means including money from friends and family or crowdsourcing, may be a better option.

Do SBA loans require a down payment?

Yes, SBA loans will require an initial down payment. The amount required for down payments will differ depending on the specific loan and borrower; however the most common down payment is 10%. This amount can range and up to 30% in some cases.2

Are you able to use SBA to get loans for personal use?

SBA loans can’t be allowed to be used for personal purposes. The money can only be used to fund your business. This means paying for expenses for your business, expanding your business, and even salaries, including your own. SBA loans are not able to be used to settle your personal debt for example, your mortgage or personal credit card debts.

The Bottom Line

Obtaining the loan for your company can be difficult, particularly if you have to put collateral in place which increases the chance of being a victim. There is a Small Business Administration (SBA) is an excellent source for entrepreneurs that provides financing opportunities without the need for collateral.

Outside of the SBA Businesses are able to obtain loans without collateral, however it’s crucial to be aware of the conditions before entering into the loan contract. The loans without collateral could have different strict terms or higher interest rates. If you are deciding to take out a loan be sure to determine the conditions that will be most suitable for your needs and your business.