Do you need a business loan but you have no asset to put up? If YES, here are 11 smart ways to get small business loans without collateral or down payment.
Obtaining a loan for your small business can be very difficult when you don’t have collateral or a good credit history. A lot of business ideas have had to go to the grave because of funding issues born out of the inability of people to afford collateral to secure loans to fund their brilliant business ideas.
However, most people don’t realize that it is now possible to obtain business loans in the United States even without collateral. Here are a few effective ways to get a loan to fund your business without collateral, or any form of down-payments or contributions.
11 Smart Ways to Get Small Business Loans Without Collateral
1. Apply for Unsecured Bank Loan: It is possible to still get a bank loan from your bank even without collateral. These loans are called unsecured loans, and are given out regardless of your credit score. The only problem with this type of loan that the interest rates are usually very high, sometimes double the current market interest rates so most people shy away from applying for them.
If you are really sure that you have stumbled on a good business idea with potential, or you are sure that the profit potential of your existing business is huge enough to fund high loan interest rates, you can go ahead to apply for an unsecured loan.
2. Get a Co-Signor: Financial institutions can approve your business loan if you can provide a co-signor. A co-signor is usually a wealthy person with valuable assets that can be used to offset a loan should you be unable to repay the loan. The co-signor guarantees the loan with his own assets so even if you don’t have any personal assets that can be used as collateral security, the co-signors assets will suffice.
3. Try Contract Financing: Banks and financial institutions also provide a service known as contract financing to small business owners.
To get contract financing, you’ll have to show the financial institution that you have entered into a contract with another business. The financial institution provides the funds you need to complete the contract, with an agreement that you’ll repay the loan when you receive payment for the project. This is especially good for businesses that carry out contracts for the government, and large business establishments.
4. Get Venture Capital Funding: Venture capitalists are a group of high net-worth individuals who pool resources together to fund businesses with huge growth and profit potential. They don’t require you to provide collateral security and most times, they don’t charge interests; they give out funding in exchange for equity.
This means that they’ll own shares in your business, and will share out of the business profits and/or losses in the future. Venture capitalists mostly fund new business ideas or business growth ideas but they are very picky about the nature of businesses they fund so you must be sure that your business is a good one with a lot of potential before you apply for venture capital financing.
Some popular venture capitalist firms to pitch your ideas to in the US include Accel Partners, Bessemer Venture Partners, Actua Corporation, Azure Capital Partners, Binary Capital, CrunchFund, GE Ventures, and Highland Capital Ventures to mention few.
5. Apply for SBA-Guaranteed Loans: The Small Business Administration (SBA) Loan is a government program established to support small businesses especially with providing business funding. The SBA has diverse loan programs for small business owners to grow and expand their businesses.
How SBA-guaranteed loans work is that you’ll find a lender that offers SBA-backed loans and then apply for your loan with the lending partner. The SBA now steps in to guarantee the loan. At the end of the day, the SBA charges a small guarantee fee which may be between 2% of 4% of the loan amount.
You don’t necessarily need collateral security to obtain SBA loans because the SBA has a lot of guaranteed loan programs that don’t require you to have any personal collateral security like the SBA 7(a) Loan.
6. Try Online Crowdfunding: Another easy way to obtain funding for your business without worrying about collateral security is crowdfunding. Crowdfunding involves receiving small chunks of investments for your business from a group of small investors. It’s almost like buying shares in your business, and you’ll have to refund the investors with some interests, however there’ll be no need for collateral security.
7. Get Cash Advance Against Credit Card: Credit cards can be used to fund your business without collateral although the interest rates are usually very high so you need to use it with caution. You can use your credit card to purchase equipment and supplies for your business, and then pay back at a later date.
8. Explore Equipment Leasing Options: You can also lease equipment that you need for your business. If the loan you are looking for is to be used for purchasing equipment for your business, you can approach equipment leasing companies.
They will give you the equipment with an agreement that you’ll pay for the equipment monthly.
The only problem is that if you ever default on payments, the companies repossess the equipment, and you’ll lose whatever funds you’ve committed to repayments before the default.
9. Rollover for Business Startups (ROBS): If you have a retirement account, you can pull out some funds from the account to fund your business idea. ROBS is a method that helps you invest the funds in your retirement account without any tax or early withdrawal penalties.
You will have to set up your business as a C-corporation and then create a 401(k) plan for the corporation. Then you will have to transfer funds from your personal retirement account to the company’s 401(k). You can always hire a Certified Public Accountant to handle the process for you smoothly.
The funds in the 401(k) will now be used to purchase stocks in the corporation so that the proceeds of the stock purchase can be used to fund your business startup or growth.
10. Microloans: If you are looking for a small loan amount, you can approach microlenders. Microlenders offer loans to small businesses without collateral although they only give out very small loan amounts.
11. Angel Investors: You can also get funding from angel investors. Angel investors are high net worth individuals who look out for businesses with potentials to invest in. If your business idea is a good one and you can write a good business plan to back it up, you can easily get collateral-free loans from angel investors.