Are you in search of a small business loan with no collateral? In today’s post, we’ll discuss your financing options and how you can obtain them.
Not every borrower can put up collateral for a small business loan. Unlike most banks, alternative lenders like First Union Lending make small business loans that don’t require collateral. Instead, they offer unsecured loans based on the creditworthiness of you or your business. Using an alternative lender is usually better than turning to credit card debt, and they have less red tape than commercial lenders.
Unsecured Loans
Loans that do not require collateral are called unsecured loans. They allow you to borrow without pledging real estate, equipment, or other assets. Unsecured business loans are typically more expensive than traditional ones, but that doesn’t make them a bad option. They can provide fast financing for a business facing a crisis or an opportunity.
What Are Your Options?
Online and alternative lenders can offer a variety of loans without collateral requirements. The types of financing you can get include: SBA 7 (a) loans, term loans, invoice financing, equipment financing, lines of credit, and merchant cash advance.
SBA 7(a) loans up to $25,000 do not require collateral which is helpful if you need to borrow a smaller amount of money. SBA Disaster Loans can be obtained straight from the Small Business Association. They offer relief for businesses that experience losses associated with natural disasters and economic crises. Not having collateral isn’t a barrier to getting a disaster loan if you meet other requirements.
Some security may be required with these financing options, but it would not be cash or personal assets. For example, you leverage equipment to borrow money in equipment financing. With invoice financing, you leverage your outstanding invoices for funds. A merchant cash advance allows you to borrow against the value of future credit card receipts.
Disadvantages
Unfortunately, a few drawbacks exist to getting a loan without collateral. For lenders, it’s all about risk. Borrowers with good personal credit, an established business, and solid revenue are less risky. These borrowers receive lower interest rates, higher loan limits, and loans that don’t have to be backed with collateral. Riskier borrowers receive lower loan limits and higher interest rates.
It’s essential to weigh these loans’ pros and cons before committing fully. Some unsecured loans- such as a merchant cash advance or invoice financing—use a factor rate rather than an interest rate to determine the cost of borrowing. The factor rate can quickly turn into a two- or three-digit effective APR depending on the financing terms and how quickly it’s repaid.
Lenders may also require a personal guarantee, which means you will repay the loan with your assets if your business can’t make payments. You should consult a financial advisor or accountant to determine if unsecured financing makes sense for your business.
First Union Lending Can Help Find You a No Collateral Loan!
First Union Lending offers numerous financing programs designed with small businesses in mind. Our business loans are fast and flexible, with financing options ranging from $5,000 to $2 million.
Call today to learn more about our various financing solutions to help your business grow and become successful.