Most business loans demand the security of collateral and are known as secured loans. A collateral is a kind of guarantee to ensure that the lender does not suffer a loss if you are unable to pay back the dues. However, there are some lenders who are agreeable to offering unsecured loans without the need for any kind of collateral. Known as unsecured loans, these can be accompanied by high interest rates and may be difficult to obtain as they have strict eligibility criteria. This can prove challenging for small businesses. Here are some other venues to explore if you are looking for a small business loan without collateral.
Turn to the SBA for Help
The Small Business Administration (SBA) frequently supports a good number of enterprises in getting a small business loan without collateral.
With even new startups eligible for this kind of loan, the SBA guarantees to repay 85% of the amount borrowed if you default on the loan.
Where the borrowed amount exceeds $150,000, this guarantee stands at 75%.
Seek Out Private Lenders
If you don’t want to take the risk of a normal collateral loan, opt for a secured loan by offering a personal guarantee, such as any assets not linked to the business, to the private lender or financial institution.
Another way of securing such a loan is by convincing a relative with a stable financial record to co-sign.
Reach Out to The Government
Some local government authorities offer loans for certain types of businesses in specific districts such as areas where new development projects are being promoted and so on.
Such loans are offered at extremely low interest rates and there might even be grants available which do not have to be repaid. See if you qualify for any of these.
Make a Franchise Your Business Venture
When you seek a loan for a business which is already franchised, such as an online tutoring company or an internet-based travel planning business, there is a high possibility of getting a loan easily.
This is because banks are more agreeable to funding franchises with a good track record as opposed to fresh businesses.
Exploit the Potential That Crowdfunding Offers
An increasingly popular way of securing a small business loan without collateral, you can seek financial aid through social networks and websites. Kickstarter, GoFundMe, and similar companies could be of help here.
Donors contribute whatever they want to and in return can expect to be rewarded or receive a bonus.
Before applying for a small business loan without collateral, ensure that debts are cleared and you have a solid business plan. It does not hurt to check cash flow projections and also research lenders before proceeding. Though unsecured business loans might seem a long shot, this is not the case.
The right preparation will help you secure the financing you are in need of with the worst case being a shorter repayment term and a higher interest rate. Nevertheless, the peace of mind that a collateral free loan comes with is definitely worth a shot.