4 Small Business Startup Loans With No Collateral

Startup business loans that don’t require collateral, i.e. unsecured loans, can be harder to come by than secured business loans. Additionally, unsecured loans often come with higher interest rates and credit score requirements. Most small business loan types will require some form of collateral to secure the loan. However, there are some startup business loan types that you may be able to get without collateral: lines of credit, business credit cards, self-securing loans and merchant cash advances.

Here’s what you need to know when considering your options for startup business loans that don’t require collateral.

If you’re looking for a list of lenders that offer unsecured loans to startup businesses, jump to the bottom of this page to see our list of the top lenders to consider for startup business loans.

When lenders give out unsecured business loans, they’re taking a bigger risk on the borrower. If the borrower can’t repay their loan, the lender doesn’t have a specific asset that they can easily liquidate for cash.

The bottom line is that there are very few truly unsecured business loans. 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.

If you have a personal guarantee attached to your unsecured startup business loan, then you, the individual business owner, are responsible for the debt if you default on your loan. It’s important to understand the implications of a personal guarantee before you commit to financing.

Even though lenders may not ask for a specific piece of collateral, many will file a UCC lien on your business. This means that if your business defaults on its startup business loan, the lender has a right to go after your assets to compensate for whatever remaining amount you owe.

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 cater to startup businesses and don’t require collateral.

Business lines of credit are some of the best business financing options available. They 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 few years in business. Many online alternative lenders, however, offer unsecured business lines of credit with more flexible requirements and faster funding speeds.

If you need access to quick, recurring funding—as most startups tend to—you may find this to be your best option for a startup business loan with no collateral requirement.

How Unsecured Lines of Credit Work

With an unsecured line of credit, you won’t have to worry about providing physical collateral to secure the loan.

You’ll be given a pool of funds that you can tap into whenever you want or need to. You’ll pay back what you borrowed—plus interest. Once you’ve paid the lender back in full, your line of credit gets refilled to its original amount.

When you apply for an unsecured business line of credit, be prepared to be approved for less capital at a higher interest rate. Unsecured lines of credit are riskier than their secured counterparts, so lenders may give you less credit and charge you more interest for the funds you end up drawing.

If you’re just getting off the ground and you need small business financing with no collateral required, a business credit card could be another solid option. When you’re in the early stages of your business, you likely don’t 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 required 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. Two examples of this loan type that small businesses most often make use of are equipment financing and invoice financing.

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.

In terms of collateral requirements, the equipment itself acts as collateral for your loan. If you default on your loan, the lender will seize the equipment to recoup their losses. Your personal assets stay safe. This makes equipment financing a good option for startups.

Invoice Financing

If you own a service-based business and you’re frequently waiting on your customers to pay their invoices, you should consider invoice financing. 

Here’s how it works: Invoice financing companies advance you a certain percentage of your outstanding invoices. 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 typically the most expensive and risky option.

A merchant cash advance company can offer you a lump sum of capital that you can use to grow your business—and you’ll pay the lender back by allowing them to take a slice 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.

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. When you do the math, you’ll find that APRs on merchant cash advances can skyrocket—reaching the triple digits.

As a small business owner who needs startup capital and can’t offer a lender collateral, you may more easily qualify for a merchant cash advance—but it should always be a last resort for your business financing.

Now that you know your options for startup business loans with no collateral requirements, here is our list of recommended lenders for you to consider.