Business Loan – No collateral loans tend to be the most attractive because you don’t need to put up anything for the loan. Getting one can be tough, but these tips can help you succeed and get a loan to start your business.
There are several options for no collateral personal loans. The most common are Small Business Administration, or SBA, loans. The SBA 7(a) loan allows you to borrow up to $25,000 without collateral.
There are other options as well. You can choose from online loans, peer-to-peer lenders, and disaster relief loans. You must make sure that you pay these loans back in time, but it’s better than a secured loan where the collateral is needed. According to Lantern by SoFi, “defaulting won’t directly result in the loss of an asset, as it would if you stopped making mortgage or auto loan payments.”
Check the Guidelines
Most lenders are upfront about what is needed for an unsecured loan. For example, many SBA loans require that you have a certain amount of cash flow along with at least two years of operating history. You often need to pass a credit check as well and have a score of 720 or higher.
That being said, there are options if you are completely new to the business, have little cash flow, or have bad credit. These loans will more commonly come from alternative lenders that are willing to take on the extra risk.
Personal and Business Asset Liability
One downside of no-collateral loans that you must consider is personal and business asset-liability. Even though you are not putting up collateral for the loan itself, the lender still wants some protection in case you default on the loan. This often requires signing a Uniform Commercial Code, or UCC, lien along with a personal guarantee.
A UCC lien is a specific lien that allows the lender to attach business assets if you default. This means that your assets might be seized in order to pay for the loan if you don’t make a payment. A personal guarantee allows the lender to sue you directly rather than your business.
While both of these sound scary, they are fairly common for unsecured loans. This is especially true if it’s your first startup loan. Just make sure that you’re ready to pay the loan back.
Try Smaller Loans
If you’re like many people, then you may have failed to get your first startup business loan. The most common reason for this is that lenders are probably worried about taking on a new risk. Consider asking for a smaller loan. Not only does this build up your credit and loan history, but it shows the lender that you can be trusted to pay back the money.
Getting a no collateral business loan can be tough, but there are many ways to do it. Just be sure to read the guidelines, make sure you can pay back the loan and you’ll be on your way to getting your first startup loan.