When it comes time to seek funding to grow or expand your small business, or stock the shelves with more inventory, you will have quite a few lending options to choose from. There is a multitude of banks, credit unions and online lenders all vying for a piece of the small business pie. That said, you might find it difficult to get your loan approved for one reason or another. Perhaps you have an abundance of debt, insufficient revenue, or a less-than-stellar Paydex score and, as a result, the lender wants you to put up a bunch of collateral. Whatever the reason may be, you are not alone. Owners of start-ups and long-established businesses are hitting a roadblock when trying to get collateral-free loans. However, there is a light at the end of the loan rejection tunnel. This Balboa Capital blog article explains how to get a business loan without collateral.
No collateral? No problem.
If you have ever applied for a small business loan, you know how time-intensive the application process is, how stringent the approval requirements are, and how much collateral the bank requires. To avoid the wasted-time and frustration, consider an unsecured business loan or a short-term business loan. These options are easy to apply for and, depending on the lender, require little or no collateral. Instead, these funding options require a personal guarantee or a Uniform Commercial Code (UCC) lien, also referred to as a ‘blanket lien.”
Secured business loans.
Prior to deciding on a loan option for your business, it is important for you to understand the ins and outs of each. First, let us look at secured loans, which are widely used by business owners because they typically have lower interest rates, and are usually the first option that comes to mind. With a secured loan, you will need to put forth some form of collateral as a security for repaying the loan. Some of the most common types of collateral include homes, automobiles, and personal investments. In the event that you are not able to repay the loan, you run the risk of losing your collateral.
Unsecured business loans.
As mentioned earlier, this type of loan can be given without any collateral. The application and approval processes are shorter than those of a secured loan are, and near-perfect credit is not needed in most cases. However, your creditworthiness will be the primary factor in getting your loan approved. The lower your credit score, the more risk you present to the lender. In addition, since no collateral is needed with an unsecured business loan, you can expect to pay higher interest rates than you would with a secured loan.
Now that you know the differences between secured loans and unsecured loans, take the time to decide the option that is best for your company. If you need capital immediately and cannot afford to wait, or if a higher interest rate is not something that concerns you, a collateral-free loan might be a good choice. Also take into consideration the amount of money you need to borrow, and how long you anticipate paying back the loan. Lastly, you might want to speak to your accountant prior to applying for a loan. It is a great way to get the information and advice you need to make smart business decisions.
Make timely loan payments.
Once you get your collateral-free loan approved, you need to commit to making your monthly loan payments on time. This can help improve your credit score, put you in a stronger financial position, and keep you away from collection attempts. As you know, making late payments will result in friendly reminders via phone calls and email. The situation can escalate to something more serious if you make late payments on a consistent basis.