Business Loans No Personal Guarantee – If you need a small business loan—either to finance your next phase of growth or to keep your business afloat during an unexpected crisis—one thing to think about is whether you’ll be expected to provide collateral.
Collateral is a guarantee for the lender if you are unable to repay the loan for any reason. If your business doesn’t have assets that can be pledged as collateral, finding an unsecured business loan may be your top priority.
Business Loans No Personal Guarantee
Fortunately, it is possible to find business loans that do not require collateral as a condition of approval. Before applying for one of these loans, it’s important to do your research so you know what to expect.
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The first step to getting an unsecured business loan is to understand the options available to you. Unsecured loans are offered by different lenders, but the loan terms and conditions can vary greatly.
The Small Business Administration (SBA) guarantees loans to small business owners through a network of partner lenders. There are several SBA loan programs to consider when you need working capital, the 7(a) program being one of the most popular. The SBA 7(a) program requires no collateral for loans up to $25,000, which is helpful if you only need to borrow smaller amounts.
For loans over $350,000, the SBA requires the lender to guarantee the loan for a maximum amount, up to the loan amount. If you don’t have enough business assets to fully secure the loan, the lender can use your personal property as collateral. However, having no collateral is not a barrier to getting a 7(a) loan if you meet the other requirements.
In addition to 7(a) loans, the SBA offers disaster relief loans to businesses experiencing losses related to natural disasters as well as economic crises. So, for example, a business that has suffered losses due to a government shutdown order can apply for an economic injury loan.
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Down payments for SBA loans can range from 10% to 30%, but will depend on the specific loan and borrower.
Similar to 7(a) loans, disaster loans up to $25,000 do not require collateral. If you borrow more than that amount, collateral is expected, but again, the SBA won’t deny you a loan just because you don’t have collateral.
Online and alternative lenders can offer a variety of unsecured loans to help you meet your business working capital needs. The types of financing you can get without the need for a guarantee include:
This type of small business financing may require some type of collateral, but not cash or other physical assets that you can offer. For example, with invoice financing, you use outstanding invoices to borrow money.
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With a cash advance, you borrow against the value of future credit card earnings. And in the case of equipment financing, the equipment you buy or lease is the security for the loan.
Equity lending is another small business financing option that does not require collateral. The peer-to-peer lending platform connects investors with small business owners who need a loan. Investors pool money to finance the loan, and the owner pays it back, like any other loan, with interest. These loans are unsecured, meaning there is no collateral.
Some types of unsecured small business financing can be more difficult to apply for than others. For example, with an SBA 7(a) loan, you must have at least two years of operating history, meet the SBA’s definition of an eligible small business, and have the minimum credit rating and income that SBA lenders seek. The SBA also requires that you exhaust all other borrowing options before applying for a 7(a) loan.
On the other hand, with online and alternative lenders, requirements can be more flexible. For example, a lower credit rating may not be a barrier to obtaining cash or invoice financing. And it can be easier to get a startup loan from an online or alternative lender that only requires six months of operating history.
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The second step in obtaining a business loan without collateral requirements is an assessment of the business and its overall financial condition. This means doing things like:
The purpose is twofold: to determine your creditworthiness for a loan and to assess your ability to repay the loan. Defaulting on a loan can hurt your credit score, making it harder to get financing in the future.
Some types of unsecured loans, such as seller cash advances or invoice financing, use a factor rate instead of an interest rate to determine the value of the loan. Depending on the terms of the financing and the speed of the payments, the factor rate can easily turn into a double or triple digit effective annual percentage rate.
While you can get a small business loan without collateral, that doesn’t mean lenders won’t require other requirements. In particular, you may be asked to sign a personal guarantee or agree to a Uniform Commercial Code (UCC) lien.
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What a personal guarantee looks like: an agreement that you will pay debts incurred by your business. A personal guarantee is often a requirement for unsecured loans and small business credit cards. Because lenders don’t have a lien they can enforce if you don’t pay, a lien gives them the ability to sue you personally to collect the unpaid debt.
Uniform Commercial Code liens are slightly different. This is essentially a blanket lien that allows the lender to seize any or all of your business assets if you have a loan. So, even if you don’t provide collateral for the loan, a UCC lien will give your lender black power to seize your assets if you default on your payments.
If you’ve applied for an unsecured small business loan and been approved, the last step is to review the loan terms. When reading the loan agreement, pay attention to the interest rate, annual interest rate (APR), payment schedule and loan term.
You need to know how long it will take to repay the loan and how much the total cost of the loan will be after interest and fees are calculated.
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Speaking of commissions, make sure you pay commissions. For example, this may include loan origination fees or early repayment penalties. If your cash flow allows you to pay off your debt early, you don’t want to pay a penalty.
Finally, consider whether a personal guarantee or UCC lien is required as part of your loan agreement. While you have the best intentions to repay the loan, it’s important to understand how the terms could affect your business if you can’t honor the agreement for any reason.
It can be difficult to get a small business loan without a good personal credit score and proof of steady income from your business. Without it, the lender risks getting a loan. Depending on various factors, the loan offer may require a guarantee or a high interest rate if the bank considers the applicant’s profile to be less reliable. These requirements can affect business. If you believe that your credit rating or business profitability is not sufficient, then obtaining financing in other ways, such as money from friends and family or crowdsourcing, may be a better option.
Yes, SBA loans require a down payment. The first installments will differ depending on the loan and the specific borrower; However, the total down payment is 10%. In some cases, this amount can reach 30%.
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SBA loans are not for personal use. Funds can only be used for your business. This includes paying business expenses, growing your business and salaries such as your own. SBA loans cannot be used to pay off personal debt, such as a mortgage or personal credit card bill.
Getting a loan for your business can be challenging, especially if you have to put down collateral, which increases your risk. The Small Business Administration (SBA) is a great resource for business owners that provides financing options with no collateral required.
Outside of the SBA, businesses can also get unsecured loans, although it’s important to understand the terms before signing the contract. Unsecured loans may have other strict terms or high interest rates. When deciding on a loan, determine which options are best for you and your business.
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