It is not possible to obtain a traditional business loan with presenting valuable assets to serve as collateral. The financial institution will ask for some assets like real estate or equipment which agree to give away in case you fail to pay the loan. The required collateral to obtain a business loan is always challenging for small business owners who are new in the industry or who don’t have any asset to give.
Note that it is not easy to obtain a business loan without collateral if your business has a bad credit rating. On top of that, obtaining a bank loan takes a long duration and a getting a business funding with no collateral can be harder if you want the cash instantly.
Nevertheless, bear in mind that traditional banking is not the only source accessible for obtaining business funding. Numerous alternative lenders offer business loan without collateral, and the majority of the loan products are faster to get than traditional bank loans.
Various types of business loan without collateral
The only way to get a business loan without collateral is to get your business funding from alternative lenders. These lenders offer numerous types of small business financing with no collateral and at reasonable rates. One of the common and the most preferred alternative lending is the merchant cash advance.
Merchant Cash Advance
Sometimes merchant cash advance is referred to as credit card factoring. This is a form of business funding where a merchant lender gives a business owner an advance payment in exchange for future credit card sales. The repayment of the loan will be done by remitting a portion of the future credit card sales of your business. Businesses will be approved for a merchant cash advance if they have been in business for 3-6 months and they have large credit card sales volume that a merchant cash advance lender can evaluate. Merchant cash advance is the best business funding alternative for those small business owners looking for a business loan without collateral.
Account receivable financing
This is a form of alternative lending also known as factoring that has the same features as a merchant cash advance. With this form of lending, a business owner receives money upfront that is based on future payments from the client’s’ account. This is a process a business owner sells his open invoices to the third entity known as a factor in exchange for a portion of their advance amount. This is another type of business loan without collateral that can be helpful when you need instant cash to buy inventory.
In essence, an equipment loan can be classified as a collateral-based business funding since the equipment bought will be later used as collateral. However what makes it a business loan without collateral is that the equipment used to obtain the funding is obtained using the financing from the loan; thus no prior existing property is needed. Note that this funding is not the same as a loan that uses the business owner’s property as collateral.