How Do I Get a Small Business Loan Without Collateral in the USA?

29 Sep 2020

Starting a business is a dream which many want to fulfill, but merely having a vision is not sufficient. Aiming to start a business requires the fund to run the operations seamlessly without any hurdles.  Crowdfunding is a popular way to raise fund for business, but not everyone can get through it. Business loans are an excellent way to get the right funding. Banks and other non-banking financial institutions have the provision of offering a business loan. However, you must know that these loans need collateral or security. What if you don’t have collateral? Still, you can apply for a business loan without collateral. Read ahead to know how.

What is a business loan?

As evident from the name, a business loan is a loan which a person can avail and use it to run its business operations. It is provided at a specific interest rate which has to be repaid over a period of time.

There are different types of business loans, some of these are for running business operations, while you can avail others for a specific purpose like buying equipment. Here is a quick look at different business loans options:

1.    Term loans

2.    SBA loans

3.    A Business line of credit

4.    Equipment loans

5.    Invoice factoring

6.    Invoice financing

7.    Merchant cash advance

8.    Personal loan

9.    Business credit cards

10.  Micro-loans

Most of these loans come with a requirement of collateral. But there is a provision to get a business loan without collateral.

Business loan without collateral:

If you are planning to start a business and are looking for an option for a loan without collateral, then you can get so by having a personal guarantee or a blanket UCC lien for the loan. With these two processes, you can easily get a loan to run your business. You can also take personal loan for business. Here are some of the options of business loan which you can apply for:

  • SBA loans
  • Online term loans
  • Merchant cash advances
  • Business credit cards

Let's have a brief overview of the same:

SBA Loan- This is a Small Business Administration Loan. The repayment period of this loan depends on how you use the money. If you plan to use this loan as working capital, then the loan repayment tenure is 7 years while for buying equipment, the tenure is 10 years. If you wish to use this loan for real estate purchase, then the tenure is 25 years.

Benefits-

  • Lower interest rate
  • You can get a loan up to $5 million
  • Longer repayment periods

Point of Caution-

  • Difficult to avail
  • Lengthy application procedure

Apt for –

  • Best for those businesses who are looking for refinancing
  • Strong credit borrowers

Online Term Loans- These types of loans are either short-term or long-term. The long-term loans are given for a set period of time; they offer a certain loan amount. The repayment period is extended over a time-frame of 2-5 years.

Short-term loans- If you are looking for quick loan options for your business, then you must opt for short-term loans. These are similar to long-term, but the borrower needs to pay it back in 3-18 months. These loans are easier to qualify but come at a higher interest rate.

Benefits-

  • Easy to avail
  • Higher borrowing amounts
  • Faster funding

Points of caution-

  • Cost can vary
  • Higher interest rate
  • Short-term loan come at a higher interest rate

Apt for:

  • Suitable for those businesses who are looking for expansion
  • The borrower must have a good credit score

Merchant Cash Advances- If you are looking for a good business loan options, then you can opt for Merchant Cash Advances. These loans may appear as if you have to put something as collateral, but the lender is actually investing in your assets. Well, there no fixed payment in this type of loan, rather the borrower makes a payment on merchant cash by withholding a credit and debit card daily sales.

Benefits-

  • Easier cash
  • No collateral

Point of Caution-

  • Highest borrowing cost
  • Frequent payment may lead to cash flow issues

Apt for-

  • Since one has to repay the loan weekly, it’s good for those who can handle the repayment.
  • Since this comes at a higher interest rate, it’s always suitable for those companies who cannot get finances from other places, or they need immediate cash.

Business Credit Card- As a business owner if you are looking for financing options, then you can choose the business credit card which has zero intro APR. You can quickly take a loan on this credit card and use it for the expansion of your business. You can use this credit card to withdraw the desired amount, but it should not exceed the limit of your credit card. This is one of the easiest ways to withdraw money, but you need to take the interest rate into account.

This business loan is used for financing expenses like office supplies, utilities, and travel expenses.

Benefits-

  • Get reward points on your purchase
  • There is no need for collateral

Point of Caution-

  • Higher cost
  • Variable rate
  • You may be charged extra fees

Apt for-

  • It's good for managing daily office expenses.

All these types of loans without collateral are good for managing office expenses and expanding the business. There are different lenders who provide these loans, but it comes at a certain interest rate, so before you decide to avail this loan, it's imperative that you must compare the loan rates offered by different lenders and then choose the one which offers the best interest rate and rewards.

The Bottom Line

There are a number of options that you can go for when it comes to getting a small business loan without collateral; in addition to the above-mentioned options, crowdfunding and lending it from your known one can be a good choice. You must have all the papers about your company and other documents supporting your loan application handy to get the loan.