One of the things business owners often try to avoid is secured loans. Business loans that are backed by collateral carry extra risks that can be avoided with a no collateral business loan.
While it makes perfect sense to want to avoid collateral, it’s not all sunshine and roses with unsecured business loans. There are several things you should be aware of if you’re after one. Rates, requirements, and other factors are different when you’re looking for an unsecured loan. So, let’s go over the things that business lenders will do to make up for the increased risk of a no collateral business loan.
How Do You Get A No Collateral Business Loan?
Most traditional lenders will require that you provide collateral. This is the simple reality of the banking world after the 2008 financial crisis. If you want a no collateral business loan, you will almost always have to go to an alternative lender.
Fortunately, the lenders that offer unsecured business loans are easier to deal with than banks in several key ways. First, they can offer you a loan, secured or unsecured, much faster than banks can. You can expect a loan in just a few days from an alternative lender. Alternative lenders typically do most of their business over the phone and online. Dealing with them is easy, and online applications can be assessed very quickly.
You can find the alternative lenders that offer no collateral business loans with a quick online search. Most of the lenders that offer them will advertise the fact that their loans don’t always need to have collateral. Just make sure to pay attention to the terms of the loan. It’s easy to avoid collateral, as you’ll know when you’re being asked to provide it.
What To Expect from a No Collateral Business Loan
There are several common things you can expect when you look for only the no collateral business loans.
Rates
When you don’t offer the lender any collateral, they will view you as a riskier borrower. More risk always translates into higher interest rates when it comes to business loans. In most cases, unsecured loans will come with much higher rates than their secured counterparts.
Documentation
To get a no collateral business loan, you aren’t often faced with too much paperwork. The documents you need vary by lender and loan type. You often only need to provide ID, recent business banking information, and consent to a credit pull.
Higher Requirements
No collateral business loans will require you to have a higher credit score. They may also lead a lender to scrutinize your business bank statements more harshly.
Lenders are always worried about the risk that comes with unsecured loans. So, they will likely offer far worse rates and be less reasonable in dealing with all but the most trusted borrowers.
Personal Guarantees
When no collateral is required, you can be fairly certain that a personal guarantee will be. A personal guarantee is a statement that holds you personally responsible for paying back your lender. If you fail to pay the lender back, they will have the legal right to pursue your personal assets. Many personal guarantee arrangements require personal guarantees from every person with a major stake in your company.
It’s very difficult to find a normal business loan that doesn’t require either collateral or a personal guarantee. Most lenders will take at least one step to cover their risk with any lender. This is especially true if you have bad credit or a financially unstable business.
Wait Times
No collateral business loans usually have shorter wait times. Overall, the lenders who can give you an unsecured loan will have streamlined application processes. They often have application processes that only take a few minutes. They are fast at providing offers, and in some cases, they will have transferred money to your account within 24 hours of your application.
Common Examples of No Collateral Business Loans
Credit Cards
Credit cards, business or personal, are usually unsecured financing options. Some business credit cards will require collateral.
Factor Rates
Some financing options that use factor rates don’t require collateral. Merchant Cash Advances (MCAs) are the most common example. An MCA is always unsecured, but MCA providers will often need you to give them a personal guarantee.
Lenders that offer No Collateral Business Loans
- Main Street Financial Group – numerous products including no collateral business loans, merchant advances, and equipment financing.
- Clearbanc – offering unsecured funding for e-commerce and Direct-to-Consumer companies.
- National Funding – in business for over 20 years, they offer unsecured working capital loans.
So, Are No Collateral Business Loans Worth It?
Most of the time, the answer is yes. No collateral business loans come with some great benefits. The first is knowing you won’t have to forfeit your assets if you can’t repay for any reason. Just remember to be wary of personal guarantees as well. A Personal guarantee is a step above giving collateral, but a lender can still use one to try to get their money back from you.
Unsecured loans can be worth it if you don’t get them based on their lack of collateral alone. Always look at the terms of any loan to make sure you can afford to handle all of the associated risks.
