When in need of a loan for business expansion or an unforeseen crisis, one thing to expect is collateral. This acts as the lender’s security in case you cannot repay your loan for whatever reason.
Fortunately, there are now lenders who offer no security business loans. Here are few steps that you should know in taking advantage of business loans with no collateral:
Be Informed of the Different Choices for Business Loans No Collateral
It is the initial step in acquiring a no collateral business loan – knowing the available options. Many lenders offer this, yet they all have different loan terms and requirements for approval.
Some offers from alternative and online lenders are also non-collateral. The types of financing you can get from them are invoice financing, term loans, merchant cash advance, invoice financing, purchase order financing, and line of credit.
These types of financing may not ask for the physical asset for security, but some other terms like in equipment financing where the equipment you’re leasing or buying is the collateral.
Another option for small-business lending that doesn’t need collateral is peer-to-peer financing. These platforms connect several investors with owners of small businesses who need loans. Investors pool money for loan funding, and business owners pay it back with interest.
Evaluate the Financial Data of Your Business to See if You Qualify
Some no-collateral small-business lenders are more difficult to qualify. On the other hand, alternative and online lenders’ requirements are more flexible, which only requires six months of business operation history.
Assess your business financials and its overall financial condition. You may want to do the following:
- Check your business and personal business credit scores
- Update your balance sheets
- Create cash flow, and profit and loss statement
- Review your expenses and your business overall cash flow
Doing these will verify your creditworthiness and evaluate your capability to pay the loan back. Failure to repay a loan can damage your credit score and result in difficulty in future loan acquisition.
Prepare for a Personal Guarantee
Acquiring no security business loans doesn’t mean that lenders will not ask other requirements or conditions before granting you a loan. You may specifically be asked to sign a personal guarantee form.
A personal guarantee form is an agreement that you will repay the loan made by your business. This is a normal requirement for non-collateral loans. This gives lenders a leeway to sue you if you don’t repay the debt.
Carefully Consider the Terms Before Signing
Applying for a no collateral small business loan, you must clearly understand the loan terms and conditions. Pay attention to the interest rate, APR or annual percentage rate, loan term, and payment schedule.
You need to also check if there are fees charged to you, such as prepayment penalty or loan origination fees.
Lastly, consider if a personal guarantee is needed as part of your loan agreement. It may be of the best intentions repaying the loan but know that this requirement may impact your business if you cannot repay for whatever reason.