What You Need To Know About Business Loans Without Collateral

Just as many small business owners you might find yourself in need to cover a short-term expense such as higher tax bill, various repairs, buying crucial equipment or you may be focused on a medium to long term investment such as remodeling, expanding, investing in inventorying or hiring new employees.

If you are just starting off, then going to a bank might not be a viable option. Even if you meet the minimum requirements for getting a loan, such as the minimum operation period and yearly turnover, you might be required to provide collateral for the bank business loan.

Most people are familiar with how secured business loans work since most of them have already used this type of lending in their private lives. A mortgage, for example, is the best-known secured loan, with the collateral being the home you purchased. If you fail to make your mortgage payments, eventually, the lender would be able to repossess the property. The whole point of offering a secured loan is to eliminate the lender’s risk. This is the reason so many banks prefer to only offer this type of loan, especially to young small businesses that are innately risky.

Most banks require some sort of liquid assets, assets that can be easily converted into cash in case of foreclosure. The easier it is to turn the collateral into cash the higher the chance to get business financing from a bank. Some of the most used collateral in banking these days are commercial real estate, business equipment, inventory or supplies.

Most people think that a bank loan can be the cheapest available option for getting a business loan, but to qualify for a bank business loan can be quite difficult and the process of getting a clear answer can even take months. This collateral needed for this type of loan may also need to be audited, which only adds more time and stress to your small business.

How to Get a Small Business Loan without Collateral

Although secured business loans obtained by providing collateral are widely considered to have better conditions than unsecured business loans, there are plenty of unsecured business loans with similar terms that don’t require any business collateral. Along with the time you save during the application and approval process, accessing financing when your business needs it can make a big difference.

This is the main reason why more and more small business owners are trying out alternatives, like silent factoring or business loans provided by private lenders or fintech. Factoring is a great option to finance your sale invoices and keep your operation strong and successful.

Besides the straightforward application process, fast answer time and fast payment time, some of these alternatives rely mostly on personal guarantee. Meaning that if you take out a loan with a personal guarantee instead of a secured loan, you will be making a guarantee that you, as an individual, will pay the debt should your company default on the loan.

Personal Guarantee Shouldn’t Be Scary but it’s Important For You To Understand How It Works

It’s important to understand that a personal guarantee doesn’t require any fixed assets — like your apartment or family valuables. You typically need to prove you have some sort  of funds to show you’ll be able to pay off the loan, in case of default. No one takes out a business loan thinking they will not repay it but the reality is that not all businesses succeed and not all debt gets paid back. This is why most private lenders that provide unsecured business loans require personal guarantees.

Another aspect to take into account is that you’ll also need to meet certain credit score criteria to get approved for a personal guarantee. Even if it isn’t much, some private lenders and fintech companies might ask you to submit a list of all your assets and liabilities during the application process.

With CapitalBox, you can apply for an unsecured business loan online, using only personal guarantee in just a few minutes and get an answer the same day. Any British business owner with at least 12 months of activity and a business bank account may be eligible for funds with a repayment period of up to 18 months.

Getting a Business Loan Without Collateral

You should always have a plan for paying back a loan when taking out a business loan to fund your small business. Always ask yourself why you want to take out that loan? 

When looking for financing for your business you should be looking at what’s more important for you and your business at that stage. The cost of the loan will always be a factor but onboarding a new client, purchasing equipment that will help you grow your business, investing in marketing or getting new hires might be a smarter investment for your business, then waiting to get the lowest interest rate on the market. It’s your choice.

Make Sure You Understand The Loan Terms

Before agreeing to any sort of loan, we advise you to look at your business and your finances objectively. Understanding the real possibility that there is a chance your business plans could fail, despite your best efforts and intentions. Go through all the possible ways each term could affect your business and your personal finances down the line.