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Compare five types of small business loans that don’t require collateral as security
How to borrow money for your business without putting up your property as security.
Small business loans help entrepreneurs meet financial obligations. However, lenders often require that you put down property as security for repayments. Not every business owner is in a position to do so.
Fortunately, business owners can apply for loans without putting up their assets as security. Lenders evaluate the strength of your business and may approve an amount based on that assessment. Besides sound business structure, you also need to show bank statements and a reasonably good personal credit history.
Which lenders offer small business loans with no collateral required?
Some online lenders offer loans that don’t require property as security. Rates, fees and loan terms differ depending on the institution, so it’s a good idea to shop around for the best combination of these factors. Online lenders are generally more relaxed than banks with their lending criteria.
Compare business loans available in Canada
What loan types are available with no collateral required?
Lenders offer a few different types of business financing that doesn’t require security. Consider the following types to see which one might work best for your business:
Unsecured business loan
With an unsecured business loan, the lender will consider the financial health of your business and whether or not you’re in a position to make repayments. The minimum and maximum amounts vary depending on the lender, but the loan amount you get depends on the lender’s assessment of your business.
Repayment periods can range from 1-7 years. The quicker you repay this loan, the more you save on interest and the better your credit profile. Lenders will more readily grant another loan to a responsible borrower.
Invoice financing lets you borrow against outstanding invoices and repay the loan once your clients honor those invoices. This is a quick, easy way to fix a business’s cash flow problems without putting up property as collateral.
Depending on the lender, you may be able to have the money in your account within one business day of the application. This kind of funding can be an option for when you’re unable to fill an order because of a cash shortage.
Purchase order financing
If you’re having trouble filling an order because of cash flow problems, you can apply for a loan where the lender pays your suppliers on your behalf. The supplier ships the order to your customer who pays the lender, and any profit from the transaction is deposited into your account.
Instead of demanding property as security, purchase order financing is granted based on your business profile, the risk of the orders, your clients’ and suppliers’ reputations and experience in the industry.
Besides providing financial breathing room, purchase order financing helps you take on bigger orders, increase turnover and streamline the supply chain. This boosts your business’s profile, thereby extending your customer base and eventually enhancing profits.
Similar to purchase order financing, a trade finance loan pays your supplier on your behalf so that you can deliver an order to your customer. You then repay the lender within the agreed-upon period.
Lenders work with foreign exchange partners to find the best interest rates, usually more competitive than those offered by traditional banks. Maximum loan amounts differ, with some lenders offering over $1 million depending on the order.
Sometimes available as a revolving line of credit, trade finance helps small businesses fulfill their orders without putting up their own assets as collateral. This type of loan can be ideal for businesses with suppliers and overseas customers. The lender acts as a third-party financier to facilitate the business deal while you get on with fulfilling the order.
If you’re struggling with old or damaged equipment, you can apply for a loan to purchase business equipment. Instead of demanding assets as collateral, lenders may take into account the strength of your business and anticipated cash flow when considering your application.
Depending on the lender, you can get different loan types to finance a rental lease, financial lease or actual purchase. You then enter into a tailored contract to repay the loan over the agreed-upon period. Some lenders may provide the option to purchase additional equipment during the loan and then adjust the repayment terms accordingly.
Acquiring a business loan doesn’t have to mean risking your property. Several online lenders grant funding based on the financial health of the business and projected income to get you the financing you need.
Want to learn more about financing your business? Check out our guide to business loans.
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