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Five types of small business loans that don’t need security
How to borrow money without laying down your assets or property as security.
Loan Types
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Expert overview: The three most important things to know about unsecured business finance
- Unsecured business loans are usually offered by alternative lenders, while the majority of banks still require residential or commercial security.
- You can generally borrow up to $500,000 - $600,000, depending on your business financials and how long you've been in operation. However, some lenders offer unsecured loans of up to $1,000,000.
- Loan options include term loans, lines of credit, invoice and and equipment finance.
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, so we've put together a guide to unsecured business loans and business loans that don't require security.
Fortunately, business owners can apply for loans without putting up their assets as security. Lenders evaluate the strength of your business and will approve an amount based on their assessment. Besides sound business structure, you also need to show bank statements and (more often than not) a reasonably good credit history.
Which lenders offer loans without security?
Both banks and alternative lenders offer loan products 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.
Alternative lenders are generally more relaxed with their lending criteria. If you have a negative credit history or serious cash flow problems, these providers may have a more varied portfolio of products suited to your situation.
What loan types are available?
Lenders offer a few different types of business financing that doesn't require security, whether it be in the form of real estate or something else. Consider the following types to see which one might work best for your business:
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 depends on the lender's assessment of your business. Online lenders such as OnDeck can approve same-day deposits of up to $150,000 with loan terms it feels you can afford.
Providers such as Kikka Capital have an online application process with no paperwork required. Your business is evaluated through credit assessment technology and you pay no establishment or monthly fees.
Repayment periods are usually short, ranging from three months to three 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 factoring
Invoice factoring lets you borrow against outstanding invoices and repay the loan once your clients honour 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 company, you can 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.
Business credit cards with no pre-set spending limit
Trade finance
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 up to $5 million depending on the order. Repayment is made over a period of 120 days.
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.
Equipment finance
If you're struggling with old or damaged equipment, you can apply for finance to purchase business equipment. Instead of demanding assets as collateral, lenders 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 hire purchase. You then enter into a tailored contract to repay the loan over the agreed-upon period. Lenders like Capital Finance allow 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 traditional and alternative lenders grant funding based on financial health and projected income to boost your business.
Picture: Shutterstock
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Ask an Expert
Hi. I am wanting to purchase a cafe business that has been operating for a number of years but I don’t have a deposit or security, can you help me?
Hi Tammy,
Thank you for your inquiry. We understand that you wish to have some financing for your business venture.
You can review your lending options for loans designed for restaurants, cafes, or bars.
It is noteworthy to know that their loan requirements and eligibility may vary, so it’s important to check them before taking up the loan. When you are ready, you may then click on the “Go to site” button and you will be redirected to the lender’s website where you can proceed with the application or get in touch with their representatives for further inquiries you may have. Alternatively, you may speak with a business loan broker for more comprehensive advice.
Hope this helps.
Cheers,
Jonathan
Hi
My credit rating is bad. I defaulted couple of times. I don’t have any property or car etc. I just opened a restaurant and put all my money into it. I don’t have enough money to sustain myself. Not enough money to pay to the staff. I need funding to support day to day running of the business.
How to get loan for that..? and in my situation will I get loan when it is only three weeks old and there is no sound financials.
Your prompt response is greatly appreciated.
Regards
Roger
Hi Roger,
Thanks for your question.
If you have a bad credit and are looking for a business loan, you can compare bad credit business loans on our website.
Cheers,
Anndy