Whether you want a loan to start your business from scratch or to expand your current setup, you’ll have to bring collateral to the table.
Lenders want to make sure that you know your stuff, and therefore demand some sort of down payment or collateral as security.
That’s great if you have assets or a huge amount of cash in your bank to cover the basic cost of securing a loan. But ever wondered what will happen if you don’t have anything to offer as collateral against the loan?
Luckily, there are options out there that can help you get a small business loan with no money or that don’t need collateral as a primary condition for approval.
Things to Consider Before Applying for a Small Business Loan with No Money
1. Know Your Options
The first step in acquiring a no-collateral business loan is to know about the available options. While many lenders offer such types of loans, the approval requirements and terms & conditions may significantly vary.
Best Small Business Loans with No Collateral Needs
Term loans are the most effective and long-term financing solution for small businesses that have no money to run or expand their business.
These loans enable businesses to borrow a huge amount of money and repay the loan over periods of up to 30-years. The best thing about term loans is that you don’t always need to put your money down to get approval.
Another perk of using term loans is that the rate of interest associated with them is comparatively low than other available options.
Line of Credit
While Business Lines of Credit aren’t considered traditional business loans, they can be a perfect alternative if you don’t have money for down payment or an asset for collateral.
Line of credit acts like your business credit card that enables you to get access to a pool of funds.
After you draw cash against your line of credit, you’ll have to start earning money out of your small business from which a lender can charge interest on the amount you’ve used.
The good thing about Business Lines of Credit is that the process doesn’t need you to apply for a separate loan each time you use your line of credit. Also, you don’t have to pay more money above your interest-payable.
Equipment financing can be an effective funding solution for businesses that intend to purchase or replace equipment without putting down money.
This type of business loan considers equipment as collateral. Since lenders can seize the asset in case of the non-payment, this type of small business loan is less risky than other available alternatives.
If you’re a new business looking for a loan with no money and your goal is to invest in equipment, then this loan option can be your safest bid.
Accounts Receivable Financing
Accounts receivable financing, popular known as invoice financing, is another prominent small business loan with no money or collateral requirements.
The idea is to sell your unpaid invoices to the lender. In other words, invoices act as your asset or collateral when you choose to get a small business loan with no down payment. You can get this type of loan if your business has long payment cycles.
SBA loans are one of the best options available so far that helps small businesses get loans with no money on easy terms and conditions. These loans are best for those small businesses that do not qualify for other conventional credit sources.
The two most popular financing programs include SBA 7(a) loans and CDC/504. These solutions provide high principal amounts and flexible repayment terms to eligible borrowers.
2. Evaluate Your Business’s Overall Financial Position
Getting a small business loan with no money and collateral can become challenging at times. Each loan option comes with its own prerequisites. For example, your business must hold a track record of 2-years if you opt for the SBA 7(a) loan.
Therefore, it is important to carefully evaluate your business’s overall financial position before you apply for a small business loan with no money.
You can do this by monitoring your personal and business credit scores. Also, create and update your business’s key financial documents and statements, including the balance sheet, cash flow statement, and profit and loss statements.
Be Prepared for a Personal Guarantee
While there are options that can help you get a small business loan with no money, you must be prepared to sign a personal guarantee.
Carefully Review the Terms & Conditions Before Signing
Last but not least, if you’re applying for a small business loan without down payment or collateral, make sure you discuss each and every minuscule detail with your lender.
While you may have good intentions to repay your small business loan on time, it’s important to understand that each and every detail enclosed in your agreement is important and might impact your business if you fail to fulfill your obligation for any reason.