What’s the one thing you never have to give up when you’re getting a business loan? Your personal assets. Many people think that you need to give up your car, your house, or other valuables to get the funding you need to start your company, but that’s not always the case. It all depends on what kind of loan you apply for. This article will cover the pros and cons of no collateral business loans so that you can make an informed decision about which option is best for your own business needs.
What Are No Collateral Business Loans?
A no collateral business loan is one type of unsecured personal loan for small businesses that do not need a third-party guarantee in order to obtain a business loan. What does no collateral mean? It means that there is no physical asset (such as equipment, a vehicle, etc.) used as security against default on repayment of your business loan.
Minimum Requirements for Applying for a No Collateral Loan
An average credit score, proof of income, valid ID, and proof of address. These requirements vary from one lender to another. To qualify for a no collateral loan, you must have enough income to make payments on time.
How to Get Started With These Loans
If you’re looking to start a business or grow your existing one but need funding, some no-collateral loans can help. You don’t have to put up any collateral as security with these loans. That means that they’re riskier for lenders because they’re not protected if you default on your loan, but if you do pay them back according to plan, these loans can help provide capital to get started on your business idea.
Disadvantages of No Collateral Business Loans
1. High-interest rates – The high-interest rates you might see with a no collateral business loan are probably going to be significantly higher than what you’d see on an unsecured personal loan (which would likely be lower than a secured business loan). This is especially true for entrepreneurs with poor credit, as poor credit often means higher interest rates from lenders. According to Lantern by SoFi, “Not having to put down collateral, being able to get the cash quickly, and having flexibility in how you can use the money may offset the higher interest rates.”
2. Higher prepayment penalties – When it comes to a no collateral business loan, these loans can also come with high prepayment penalties, which will make it that much more difficult for you to refinance or change your payment plan if necessary down the road.
3. Lengthy application process – Applying for one of these loans can be time-consuming and require multiple meetings/interviews in person before they approve your application
Advantages of No Collateral Business Loans
1. It’s easy to get approved: institutions grant this type of loan is without asking for a down payment or any collateral, making it easier for you to get approved in just a few days.
2. Allows you to work with multiple lenders: Since each lender has different lending criteria, it means you can borrow from multiple lenders at one time; which may make your loan application successful than having fewer lenders involved in your project
3. It might be cheaper than other forms of financing: Compared to other forms of financing, such as peer-to-peer loans and invoice factoring, business loans may often be much cheaper in general.
Are you a new business owner who can’t get a business loan with good credit? That doesn’t mean that financing options are available for your small business. Many lenders, like Lantern Credit, offer unsecured personal loans that are ideal for funding small businesses without using collateral or other security to guarantee repayment of your business loan.
Just because you don’t have collateral doesn’t mean you can’t get a business loan. In fact, some types of loans are more widely available to those who don’t own a home or other property. Learn about these options.