4 Options for No Collateral Business Loans

Startup business loans that don’t require collateral, also called unsecured loans, can be harder to come by than secured business loans. Plus, unsecured loans often come with higher interest rates and credit score requirements. 

When lenders give out business loans with no collateral, they’re taking a bigger risk on the borrower. If the borrower can’t repay the loan, the lender doesn’t have a specific asset that they can easily liquidate for cash. That’s why in most cases, even if you aren’t putting up a specific piece of collateral for a loan, the loan is being secured in other ways, such as a personal guarantee or blanket UCC lien.

But you do have several options for small business loans that may come without a collateral requirement: lines of credit, business credit cards, self-securing loans and merchant cash advances.

If you’re ready to find an unsecured business loan, jump to the bottom of this page to see our list of the top lenders to consider for startup business loans.

As an entrepreneur, you likely already know that starting a business comes with many costs, some big and unforeseen. Fortunately, paying out of pocket isn’t your only option for managing the many startup costs you will face as a small business owner. Here are four funding options that often accept startup businesses and don’t require collateral.

Business lines of credit offer borrowers flexible, revolving capital whenever they need it.

To access an unsecured business line of credit through a more traditional lender, such as a bank or credit union, you’ll almost certainly have to meet strict qualification requirements, including good to great credit and at least a couple of years in business. 

Many online alternative lenders, however, offer business lines of credit with more flexible requirements and faster funding speeds and with no collateral required.

How Unsecured Lines of Credit Work

With an unsecured line of credit, you don’t have to provide physical collateral to secure the loan. You’re given a pool of funds that you can tap into whenever you need to. You pay back what you borrow—plus interest. Once you pay the lender back in full, your line of credit gets refilled to its original amount.

Unsecured lines of credit are riskier for lenders than secured lines, so lenders often give you less credit and charge you more interest for the funds you end up drawing.

When you’re in the early stages of your business, you may not want to apply for too much financing because you don’t know what kinds of costs will come your way. Business credit cards can help you avoid taking on more debt than you can handle.

Specifically, 0% introductory APR business credit cards are an excellent tool to make purchases and pay them off over a set number of months—interest-free. You’ll want to make sure, though, that you can pay off your balance before this intro period expires and a variable APR—determined by the market and your creditworthiness—sets in.

When to Use a Business Credit Card as a Loan

Here are several examples of when it may make good sense for you to use a business card rather than take out a loan.

• You don’t have time to wait for a loan application to be approved and funded.
• You haven’t been in operation for very long and therefore don’t meet the minimum time in business qualifications for an unsecured loan.
• You have solid personal credit.
• You lack collateral.

Overall, business credit cards can offer up affordable startup financing and help tide your business over until you have enough business history to qualify for a more traditional form of funding.

A self-securing business loan is another option for a startup business loan with no collateral. With this type of loan, the asset you’re financing serves as the collateral for the funding, rather than your personal or other business assets. Equipment financing and invoice financing are two common examples of this loan type.

Equipment Financing

If you’re taking out a loan because you need to invest in expensive equipment for your startup, for example heavy machinery or a suite of hardware and software, consider applying for equipment financing.

Although it is possible to finance up to 100% of your equipment purchases with an equipment loan, it’s more likely that you’ll pay a small down payment. You’ll then pay back the lender in monthly installments that include interest. When you’ve paid in full, you own the equipment.

The equipment itself acts as collateral for your loan. If you default on your loan, the lender seizes the equipment to recoup their losses—but your personal assets stay safe.

Invoice Financing

If you run a business-to-business company and you’re frequently waiting on your customers to pay their invoices, you may consider invoice financing. 

An invoice financing company advances you a percentage of your outstanding invoices, typically 80-90%. They’ll hold onto the remaining percentage and charge fees for each week it takes for your customers to settle the invoice. Once your customer has paid in full, you’ll get the reserve amount back, minus the lender’s fees.

With invoice financing, the invoices themselves serve as collateral for the loan.

A merchant cash advance is a quick and easy way to get a startup business loan without collateral, but it is also the most expensive and risky option.

A merchant cash advance company extends you a lump sum of capital, which you pay back through a percentage of your business’s daily sales.

With no collateral required and poor credit scores accepted, merchant cash advances can meet your financing needs when you don’t qualify for other business loans. But proceed with caution: Merchant cash advances are the most expensive financing solution on the market and should be a last resort for your business financing.

Why Merchant Cash Advances Are So Expensive

Merchant cash advance companies quote their prices in factor rates, usually ranging from 1.1 to 1.5. Multiply that factor rate by your loan amount to figure out the total amount you’ll owe.

After that, convert your factor rate and any other fees to APR to get a true sense of the total cost of the cash advance. The math here gets pretty complex, but you can find online calculators with a quick search that will do the math for you. You’ll find that APRs on merchant cash advances can skyrocket—reaching the triple digits.

Here is our list of recommended lenders with unsecured loan products and time-in-business requirements of one year or less.