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Get a small business loan without collateral

Myles

Author: Myles Robinson - Advisor

Posted: May 31, 2022

Is it possible to get a small-business loan without collateral?

You don’t need collateral to obtain a business loan. These are five options to help you get business loan funding for your venture.

Many small-business owners may believe they cannot get a business loan without collateral because banks might consider them too high risk or not able to repay the business loan.

However, this is not true. Banks are now more open to lending small business loans than ever before.

These business loans may be unsecured loans at times, but only small businesses with excellent credit histories are eligible for this type of business loan.

A secured business loan may require a personal guarantee such as property or asset of a value.

How to get a small business loan without collateral

Bad credit history can prevent any funding whether it be for a business loan, unsecured business loan or personal loan.

A small business loan without personal guarantee assets is difficult for a new company. There are other financing options available to small businesses that want rapid growth.

You may be a business owner of a small business and require a business loan or business finance for your next phase of growth, or to maintain your business’s stability during an unexpected crisis.

One thing you should consider is whether you will be required to bring collateral or if you can have a business loan without collateral. Be sure to read the loan agreement or contact our online lenders to find the best way to borrow money for your business.

A business loan calculator could help give you an idea of the business finance available to you.

In the event you default on the loan or are unable to repay it, collateral acts as the security. A no-collateral loan for business may be the best option if your company is lacking assets that can be pledged as collateral.

It’s possible to get business loans without the need for collateral. It is important to research these loans before you apply.

This article will discuss how to obtain a loan for a business without collateral and the steps that small businesses and startups need to take before applying.

What is a small-business loan?

A small business loan can be a source for finance that is available to smaller businesses looking to expand their operations. The majority of small business loans are available in amounts between £500 and £5,000,000.

Learn the basics of small business loans in this complete guide. You can also check out our FAQs if you have any questions.

Many small businesses fail or struggle when they start their journey.

This is one reason businesses often fail within their first five years of existence.

It can be difficult to get financing for a startup business. It is possible that you don’t have a good credit record, have not signed up clients, or have little track record of success.

This may sound familiar? Then you will be interested to know what types of small-business loans are available to your company.

How to get a loan for your start-up business without collateral

Your business may be eligible for a variety of small business loans:

Loans for asset financing

Asset financing allows companies to finance new equipment that will drive growth. This is possible when they don’t have the capital to buy it from their business accounts.

Businesses can use asset financing loans to buy office equipment and computers to increase their efficiency.

Typically, asset financing loan terms range from 12 to 72 months.

Invoice financing

Businesses don’t need to wait for clients to pay their invoices before they can invest or spend the money owed to them for growth projects.

Invoice financing is a way for a company to sell its balance sheet to a lender in exchange for a percentage of its value.

Invoice financing is a good option if your business has been experiencing slow growth due to late payments.

Credit lines

A credit card is a funding resource for small businesses. It allows a lender and business to agree on a fixed amount to be available to them whenever they need it.

Businesses that are faced with unexpected expenses may find this useful. Credit is available and ready to go. An arranged credit line can be thought of as a type of loan in reserve that is available whenever it’s needed most.

Alternative financing

Alternative lenders are more likely to offer unsecured financing to businesses that can’t get small business loans from banks.

However, there are some things you should be aware of.

Personal guarantees are required for alternative lenders such as online banks or peer-to-peer loans. This personal guarantee must be provided by the company director.

Alternative finance small business loans come with greater risks than personal guarantees. Unlike a loan that you personally guarantee, but your business is not liable for the repayments, unsecured loans are subject to higher interest rates.

Alternative lenders will assess your business’ credit history, revenue generation history, and business plan to determine how risky a loan is.

Consider these things when applying for alternative financing

 

Before applying for a small-business loan, follow these steps:

1. Credit record

You can present your company as less risk to lenders by optimising your credit rating. Credit ratings are a significant factor in determining whether a business can be approved for small-business loans. Your business should improve its credit rating if it is low.

A small business can improve its credit rating by using a variety of methods.

Please share as much information as you can, credit checking relies upon confirming information regarding your business’s incomings as well as outgoings.

You must pay your bills on time. Failure to do so can cause credit damage. Late payments without additional interest are a form of credit granted by creditors.

It is a sign that your company is financially healthy and has a clear understanding of its responsibilities.

Limit credit applications to make sure you only apply for credit when they are necessary. Credit applications can trigger credit searches that could affect your business. Credit searches can be recorded on your credit report and are a sign that your business may be in financial trouble.

For more information, see the Experian credit scoring guide.

2. You must ensure that you are able to repay the loan.

You should consider your cash flow projections. This knowledge can be gained by having a detailed business plan. You can calculate the monthly payment you can afford and the interest rate that won’t cause your business to fail by assessing your cash flow.

Alternative finance business loans often have higher interest rates than traditional small-business bank loans. Failure to repay any business loan can damage your credit score, and make it difficult to obtain funding in the future.

3. Tighten up your business plan

Your business plan should be sound. Include detailed financial statements detailing current and future earnings.

Describe how your business works and how you earn money.

Finally, show your growth plans to demonstrate how you plan to pay back the loan.

4. Make sure your business is eligible

You may be required to declare the company’s turnover when applying for a business loan. Lenders will vary in the amount of qualifying money they require.

Some lenders will require a turnover of as low as £12,000 while others will expect a turnover between £100,000 and £200,000 to be eligible for a loan.

5. Compare small-business loans lenders

Find small business loans from multiple lenders with our comprehensive guide

Contact us here for the best rates from many lenders.

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