We’re often approached by people wondering how they can get small business loans without collateral. They find themselves in a situation where they need additional funding but aren’t able to provide the security that most banks demand. Maybe they have received a higher tax bill than expected and need a loan to make the payment on time. Perhaps they’ve been offered an investment opportunity or want to expand but need extra funding to move forward. Sometimes there are simply things that are out of our control, like a big customer going bust or unexpected repairs that are urgently needed.
If you don’t have collateral to support your small business loan application then you might think you’ll be rejected. In all truth, many of the traditional banks won’t consider applicants who don’t meet their collateral requirements. The good news is, there are alternative options out there for those who need them. In this article, we outline how to get competitive small business loans without collateral or security.
Why Does Collateral Matter?
Most traditional lenders will require some form of collateral when approving a small business loan. It might take the form of your home, car, or business property. This is intended to provide security and ensure that you will repay the amount that you borrow. In the event of a default, whatever you’ve provided as collateral will be forfeited and the bank will take possession of it. This enables them to sell it on and recoup any losses from the loan. It’s great for the banks but understandably less appealing from the borrowers’ perspective.
There are lots of reasons that providing collateral for a loan can be problematic. You might not feel comfortable pledging your personal assets or business resources. It might be that you don’t have enough assets to meet the requirements of your lender. Perhaps you’ve heard that assets often get undervalued and worry that you’ll get a bad deal if the worst should happen. In order to recoup their losses, the bank might value your assets below market value in order to make a quick sale. This could mean that more assets than necessary are required to pay off the default amount.
Traditional lenders are very strict about collateral requirements – if you don’t meet them then your loan won’t be approved. There’s no negotiations or gray areas, just a flat ‘no’. They often have multiple criteria that you need to meet in addition to collateral such as a perfect credit score and at least two years of trading history. Unsurprisingly, many small businesses find themselves unable to meet the stringent requirements and unable to secure a loan. However, other lenders are emerging (like Strategic Capital) with a more pragmatic and modern approach to business finance. They offer alternative lending options with more realistic requirements and may be a better alternative if you don’t have collateral.
Getting Small Business Loans without Collateral
Whenever looking for small business loans it’s important to do thorough research. If you don’t have collateral, then look out for loans that mention the word ‘unsecured’. This indicates that the lender doesn’t require collateral to be provided so if you do default on it then neither your personal nor business assets would be at risk. Unsecured small business loans or unsecured business lines of credit would both fall into this category, but there are many more options out there.
It’s also important to read the fine print. Although some loans will require collateral, it may not have to be yours. It’s common for commercial equipment to be leased and leveraged against itself, so that if you default on your payments then they simply take the equipment back. Merchant cash advances also provide another avenue since they allow you to leverage your customers’ payments against the cash advance. If you think about your own business operation, then you’ll probably be able to come up with other examples.
If it’s a straight up small business loan that you’re after, then alternative lenders are likely to be your best option. They often have approval processes that are simpler to work through and requirements that are easier to meet. At Strategic Capital, a well-established business with consistent growth is our primary metric. Though credit is a very important factor that lenders use to gauge your qualifications, it is certainly not the only one. Our three main qualifications are having at least a minimum of 6 months in business, a personal credit score of 500 or greater, and monthly revenue (gross sales) exceeding $10,000 on average. We don’t require you to provide collateral, so you can sleep soundly at night knowing that your home and business assets are not at risk.
Why Don’t Alternative Lenders Require Collateral?
You might be wondering why alternative lenders like us don’t require collateral for loans. After all, the traditional banks all do so there has to be a catch, right? The simple answer is that we’re just not like other lenders. Strategic Capital was founded in 2014 to tackle the prevalent demand for capital within the small business community. We thrive by enabling small businesses to exceed their potential, not making them jump through hoops. We believe getting the loan you need for your business should be a fast, simple, and secure process, so everything we do aligns to strengthen one of those pillars. We’ve stripped out all the unnecessary complexity from small business loans to make them accessible to a wider range of organizations.
The use of collateral to guarantee a loan is rooted in the past. Traditional banks continue to adopt this approach because they make a lot of money from it. Where they don’t see enough profitability, then make it more complicated for businesses to be approved. They can afford to do this because they have multiple streams of income from commercial mortgages, personal bank accounts, and other types of loans. By contrast, we specialize in small business financing so it’s in our interest to make our loans accessible to as many customers as possible.
How We Can Help
Strategic Capital offers numerous small business loan options that support organizations across the USA. We don’t require capital which means that your personal and business assets aren’t part of the equation. If you’re in need of short-term financing, then we can help. Whether it’s to pay for emergency repairs to your commercial property or investing in expansion we offer small business loans without the need for collateral. Best of all, you’ll benefit from competitive repayment terms and low interest rates, so you have more money to reinvest into your business.
Transparency, innovation, and expertise are the driving factors behind everything we do. With a talented team of advisors, a plethora of funding partners, and the best technology available -we go above and beyond to help our clients receive their capital rapidly with the industry’s most competitive repayment options and interest rates. We want to break speed records, not bank accounts.
Upon submitting your application, it’s reviewed by a dedicated Capital Advisor. We generate the best rates and terms at lightning speed through our funding matrix and robust lender network. Yep… it’s that simple. Learn more about our small business loans here.
Checking for pre-approval will not affect your credit score.