How Do You Get a Small Business Loan Without Collateral? (2023)

Susan GuilloryUpdated August 17, 2022

(Video) How To Get A Business Loan Without Collateral

Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.

When your small business takes out a loan, how does the lender know you’re going to pay it back? There are a number of ways. In certain situations, when you apply for small business loans, you’re required to provide what’s called collateral.Collateral is an asset of value that, should you fail to repay the loan, the lender can seize (and sell) to recoup their losses. When you put up collateral, the bank or lender you’re working with sees you as less of a risk when it comes to paying back the loan.Not all loans require collateral, however. Read on to learn why that is, what situations might require you to provide collateral, and how to get a small business loan without collateral, if you qualify.

How Do Traditional Loans with Collateral Work?

No matter where you apply for a small business loan, the lender will look at how much risk you present.One indicator of that level of risk is your credit score. If your business or personal scores are low, it indicates that you may not always have been financially responsible in the past. Maybe you’ve taken on more debt than you could afford. Maybe you’ve missed credit card bills. Maybe you have a bankruptcy on your record. All of these may concern a lender, since it is primarily focused on the likelihood that you will repay the loan.Because of that concern, some loans may be secured, meaning that they require collateral. Unsecured loans, by contrast, don’t require collateral. Collateral is typically an asset that you own. When you put it up as collateral, you are agreeing that the lender can seize it if you are unable to pay your loan. The lender can then sell this asset to cover what you owe.Some examples of collateral that small businesses may have include:
  • Heavy machinery
  • Equipment
  • Real estate
  • Cash
  • Securities (e.g., treasury bonds, stocks, or certificates of deposit)
  • Inventory
  • Vehicle
So, let’s say that you’re applying for a $50,000 secured loan. You might put up a piece of heavy machinery you own as collateral for the loan. If you aren’t able to fully repay the loan, your lender has the right to seize that asset to cover the balance of what you owe.Collateral is not a commitment to take lightly. Putting up collateral like critical equipment and real estate you’ve worked hard to get could jeopardize your business. That’s why you might want to learn how to get a small business loan without collateral when it’s possible so that you don’t put your business at risk.

Do Small Business Loans Without Collateral Exist?

Yes, it’s possible to get a small business loan without collateral. But because the lender will face a higher risk when you don’t put up an asset to secure the loan, they will look closely at your credit scores, business history, and annual revenue to determine your creditworthiness and likelihood to repay the loan.Also, because there is higher risk involved for the lender, loans without collateral often come with higher interest rates, shorter repayment terms, and sometimes a personal guarantee (more on that later).

Why Some Loans Require Collateral

Some lenders require collateral because they offer low interest rates. A collateralized loan presents less risk for the lender that it will not recoup its investment in you, so it’s able to be competitive and get your business with a low rate.Other lenders require collateral because they cater to people who might not qualify for other financing by offering bad credit business loans. For businesses with poor or limited credit, an unsecured loan through a bank might not be an option, so they may need to go with lenders that have more requirements in terms of collateral.There are also specific loan types that, by definition, require collateral, such as invoice financing and equipment loans. Invoice financing (and the related invoice factoring) uses the value of the business’s unpaid invoices as collateral, and equipment loans use the equipment you’re purchasing to secure the loan.

How Do Unsecured Business Loans Work?

If you don’t have collateral (or don’t want to put your business assets on the line), it may be possible to get an unsecured loan. In this case, the lender might use the following clauses to lessen the risk of lending you money.

Blanket Liens

As a condition of your unsecured loan, your lender may file a blanket UCC lien on your company assets. This means that, should your business default on the loan, the lender has the right to go after your assets to compensate for any amount still owed.Thus, even if you don’t put up collateral, a blanket lien means the lender can seize assets. However, getting financing with a lien is generally a faster process than getting a secured loan.

Personal Guarantees

Without collateral, a lender may require you to sign a personal guarantee in order to get your business loan. This guarantee means that you agree to repay the loan out of your own pocket in the event that your business defaults on the loan. While you shouldn’t be afraid of signing a personal guarantee, it’s important to understand what it means before you commit to the loan.

Pros and Cons of Getting a Small Business Loan Without Collateral

Small business loans without collateral can have both benefits and drawbacks. Here’s a look at how they stack up.Let’s dig a little deeper into the details.

Pros of Small Business Loans Without Collateral

There’s more paperwork involved with a loan that requires collateral, plus that asset must be assessed and valued. A small business loan without collateral would typically take less time to process and, as a result, could fund faster.Because you aren’t putting up a key asset (such as your commercial real estate or equipment) for the loan, there’s no risk that you will jeopardize your business by allowing those assets to be seized if you can’t pay the loan. (Of course, you will still have to figure out a way to pay back the loan.)If you choose to work with an online lender, you may have better success at getting a small business loan without collateral than if you apply with a traditional bank.

Cons of Small Business Loans Without Collateral

In researching how to get a small business loan without collateral, you’ll find that it isn’t all roses and sunshine. There are definitely some potential downsides to taking out an unsecured loan.First, these loans tend to have higher interest rates, since they represent higher risk to the lender.Also, the value of the collateral you put up often determines how much you’re eligible for. So without that collateral, you may not be eligible to borrow as much.A loan with no collateral may require signing a personal guarantee or agreeing to a blanket lien, so you can still end up putting assets at risk.

8 Types of Small Business Loans Without Collateral

Here’s a look at different types of small business financing that may not require collateral.

1. SBA loans

Small Business Administration (SBA) loans are often considered the gold standard for business loans because they typically offer the largest amounts and lowest rates. And, since these loans are backed by the government, they can be easier to qualify for than other types of business loans.Some SBA loans require collateral. Others do not. It’s often left to the discretion of the SBA lender to determine whether collateral is required, based on the qualifications of the borrower. However, with the 7(a) program, no collateral is required for loans up to $25,000. For 7(a) loans over $350,000, the loan typically must be collateralized to the maximum extent possible up to the loan amount, according to the SBA.

2. Long-Term Loans

Long-term business loans are lump sums of capital paid back over a set period of time — typically from three to 10 years. Banks and credit unions may choose to require collateral for long-term business loans at their discretion. With the unsecured loans, however, you may need to provide a personal guarantee, which means that if your business can’t pay back the loan, you personally will have to.

3. Merchant Cash Advance

Another no-collateral business loan option is a merchant cash advance. It’s not technically a loan though. Rather, you’re borrowing against future credit card sales. You pay back the advance (plus a fee) by having a certain portion of your daily or weekly debit and credit card sales automatically withdrawn from your business bank account.

4. Online Loans

If you get a business loan from an online lender, you may not need to supply collateral. Instead, an online lender might require a personal guarantee or, possibly, a blanket lien to reduce its risk. However, online business loans tend to charge higher interest rates and offer less favorable loan terms than traditional banks.

5. Business Credit Cards

While a business credit card is not exactly a loan, it can serve as a source of no-collateral funding for your business. This is especially true if you are able to get a 0% introductory annual percentage rate (APR) business card.These intro deals often last as long as 12 to 18 months, which could allow you to charge expenses up front, then pay them off interest-free. Just keep in mind that, once the promotional period expires, you may end up paying high interest and fees.

6. Business Lines of Credit

While banks often require collateral for a business line of credit, you may be able to find an unsecured business line of credit from an online or alternative lender.Secured or unsecured, a business line of credit can be a flexible source of funding for newer businesses with limited credit history. You can borrow what you need up to a certain limit. As you pay off the amount you owe, it’s freed up for you to use again when you need it.

7. Equipment Financing

Equipment financing can be helpful for new businesses that need funding to purchase expensive equipment but can’t (or don’t want to) use other assets for collateral. With an equipment loan, the item you are purchasing acts as collateral. If you default on your loan, the lender will simply seize the equipment to recoup their losses. Your personal and business assets stay safe.

8. Invoice Financing

Invoice financing (also known as accounts receivable financing) is a cash advance you can get on your outstanding customer invoices. With invoice financing, your invoices serve as collateral, so you don’t have to put any additional assets on the line.With this type of financing, an invoice financing company advances you a certain percentage of your outstanding invoices. They hold onto the remaining percentage and charge fees for each week it takes for your customers to pay up. Once your customer has paid in full, you’ll get the reserve amount back, minus the lender’s fees.

How to Qualify for Business Loans Without Collateral

If you’d prefer to avoid the hassle of collateral — or don’t have enough assets to offer as collateral for the amount of money you need — you still have financing options.You may be able to get an unsecured business loan from an alternative lender. These lenders may also offer a faster, larger loan than a traditional lender could offer with a secured loan. However, they tend to come with higher interest rates and shorter terms because they’re less secured.It may also be possible for you to get an unsecured loan from a bank or SBA lender. But, with no security for the loan, the lender will likely look very closely at your household income, business and personal credit scores, business revenue, business cash flow, and outstanding debt. All these variables will help lenders calculate how likely you are to repay the loan.Recommended: How to Build Business Credit

Check Your Small Business Loan Rate

If you’re curious about what type of small business loan (with or without collateral) you may be able to qualify for, Lantern by SoFi can help. With our online lending platform, you can quickly compare business loan offers from multiple small business lenders matched to your needs and qualifications.
The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.LCSB0822017

Frequently Asked Questions

Do startup business loans with no collateral exist?

(Video) How To Get A Business Loan With No Assets or Collateral

How do traditional secured loans work?

(Video) How To Get A Startup Business Loan With Bad Credit And No Collateral ($250,000-$500,000 Fast!)

Can you get a small business loan without collateral?

What kinds of loans can you get without collateral?

(Video) How To Get A $300k Business Loan Incredibly Fast Without Collateral (500+ FICO Score Accepted!)

About the Author

How Do You Get a Small Business Loan Without Collateral? (2)

Susan Guillory

(Video) How To Get a Small Business Loan With Bad Credit and No Collateral

Susan Guillory is the president of Egg Marketing, a content marketing firm based in San Diego. She’s written several business books, and has been published on sites including Forbes, AllBusiness, and Cision. She enjoys writing about business and personal credit, financial strategies, loans, and credit cards. Follow her on Twitter @eggmarketing.


Can you get a loan if you don't have collateral? ›

Unsecured loans do not require collateral, like a house or car, for approval. Instead, lenders issue these loans based on information about you, like your credit history, income and outstanding debts.

Do you need collateral for SBA loan? ›

Lenders are not required to take collateral for loans up to $25,000. For loans in excess of $350,000, the SBA requires that the lender collateralize the loan to the maximum extent possible up to the loan amount.

What is the easiest loan to get approved for? ›

The easiest loans to get approved for would probably be payday loans, car title loans, pawnshop loans, and personal installment loans. These are all short-term cash solutions for bad credit borrowers in need.

Do banks give business loan without collateral? ›

Lenders sometimes require collateral to reduce the risk of a loan transaction. This means that if you default, they can seize the collateral—whether it's a bank account, business inventory, real estate, etc. —to recoup their losses. But with an unsecured business loan, you can get financing that requires no collateral.

What disqualifies you from getting an SBA loan? ›

Ineligible businesses include those engaged in illegal activities, loan packaging, speculation, multi-sales distribution, gambling, investment or lending, or where the owner is on parole.

What will stop you from getting SBA loan? ›

A low personal credit score can disqualify you from an SBA loan. You can boost your personal credit score by: Sensibly managing the amount of debt you have and not using up all of your credit limits. Always making repayments on time and avoiding delayed payments.

Can I get an SBA loan with no money? ›

The SBA Microloan is one of the few SBA loan programs backed by the Small Business Administration (SBA) that doesn't have a down payment requirement. However, the SBA will still require loan applicants to submit a personal guarantee.

What is the minimum credit score you will need to borrow money? ›

Many give preference to borrowers with good or excellent credit scores (690 and above), but some lenders accept borrowers with bad credit (a score below 630). The typical minimum credit score to qualify for a personal loan is 560 to 660, according to lenders surveyed by NerdWallet.

Where can I borrow money instantly? ›

If you need to borrow money immediately, the most popular options are personal loans, cash advances online, payday loans, pawn shop loans, and banks or credit unions. But be careful with cash loan options that promise you a quick loan with no credit check.

How big of a loan can I get with no credit? ›

What is the most money you can borrow if you have bad credit? Reputable lenders of personal loans for bad credit allow customers to borrow as much as $40,000 or $50,000. With that said, the lower your credit score, the lower amount you would likely qualify to borrow.

Which bank gives business without collateral? ›

Axis Bank now offers collateral-free EMI-based Business Loans for the self-employed with minimum documentation.

What proof do you need for a business loan? ›

Get the required documents before you apply.

Typical documents include personal and business tax returns, government-issued ID, EIN, financial statements, business documents, bank statements, and your SSN. Some lenders like Camino Financial will accept your ITIN only if you don't have an SSN.

Will banks loan money to start a business? ›

Banks and credit unions offer secure loans are often easier for new businesses to get and have lower interest rates than unsecured loans. Loan amounts typically range from $50,000 to $100,000.

What is the minimum SBA loan amount? ›

7(a) loans do not have a minimum loan amount and max out at $5 million. The SBA guarantees 85% of your loan if it's less than $150,000 and 75% if it's more than $150,000. However, it limits guarantees to $3.75 million. SBA loans aren't easy to qualify for.

Does everyone get approved for SBA? ›

In general, eligibility is based on what a business does to receive its income, the character of its ownership, and where the business operates. Normally, businesses must meet SBA size standards, be able to repay, and have a sound business purpose. Even those with bad credit may qualify for startup funding.

How much can I get for a small business loan? ›

The average small business loan amount is $663,00. The average small business loan amount from alternative lenders is $80,000. Small business loans can range from $13,000 to $1.2 million. Alternative lender small business loans range from $5,000 to $200,000.

How can I increase my chances of getting a business loan? ›

But there are things you can do today to increase your chances of getting a business loan.
  1. 1 – Get your credit score in check. ...
  2. 2 – Don't get multiple quotes from multiple lenders. ...
  3. 3 – Reduce negative balance days. ...
  4. 4 – Choose the right lender. ...
  5. 5 – Create a perfectly written business plan.

Why is it so hard to get a business loan? ›

Because of stricter regulations, it's hard for banks to innovate and start using information other than credit scores to determine risk. If you have bad credit, it's much harder to get a business loan from a bank because they don't use all the data that alternative lenders do.

What percentage are SBA loans approved? ›

At large banks, the approval rate for business loans, including SBA loans, is only around 25%. At small banks, the approval rate is higher—sitting around 49%—but more than half of borrowers still get turned away. So if you have been denied for an SBA loan, you're certainly not alone.

How do I fund a business with no money? ›

6. Source funding to grow
  1. Friends and family loans. Do you have a personal support network that can back your new business idea? ...
  2. Small business loans. Get larger amounts of money from a lender, like Shopify Capital, to go toward payroll, inventory funding, or marketing. ...
  3. Capital investors. ...
  4. Small business grants.
21 Mar 2022

How do I start a business with no money? ›

The most popular methods to buy a business with no money of your own are SBA loan and Seller financing. There are more ways such as getting an equipment loan, depending on the type of business you are buying.

What happens if you don't have enough collateral for a loan? ›

Depending on the lender, you may have one or more of the following options: Provide a general, blanket business lien against all assets. Provide a guarantee that you will personally repay the loan if the business defaults. Taking out a complete unsecured loan.

Which bank does not require collateral? ›

Axis Bank personal loans are unsecured loans. Axis Bank does not require any collateral or security to give you a personal loan.

What type of personal loan is without collateral? ›

Unsecured loans are loans that don't require collateral. They're also referred to as signature loans because a signature is all that's needed if you meet the lender's borrowing requirements.

How can I borrow against my own money? ›

Passbook loans — sometimes called pledge savings loans — are a type of secured loan that uses your savings account balance as collateral. These loans are offered by financial institutions, like banks and credit unions, and can be a convenient way to borrow money while rebuilding your credit.

How do you finance a startup company? ›

Startup Financing
  1. 10 Startup Financing Models to Fund Your Small Business. ...
  2. Start With Personal Financing and Credit Lines. ...
  3. Reach Out to Friends and Family. ...
  4. Apply for a Business Loan. ...
  5. Catch the Attention of an Angel Investor. ...
  6. Pitch Your Startup to Venture Capitalists. ...
  7. Host a Crowdfunding Campaign. ...
  8. Join a Startup Incubator.

How much of an unsecured loan can I get? ›

Unsecured loans typically range from $1,000 to $100,000, which you can use for a range of purposes. In general, annual percentage rates (APRs) range from about 6% to 36%, and loan terms often extend from two to seven years.

Which banks provide collateral free loans? ›

Collateral free loans can be availed from major banks in India including but not limited to:
  • Axis Bank.
  • Bank of Baroda.
  • Fullerton India'
  • UCO Bank.
  • State Bank of India.
  • State Bank of Hyderabad.
  • HDFC Bank.
14 May 2020

Do unsecured loans hurt your credit? ›

Taking out a personal loan is not bad for your credit score in and of itself. However, it may affect your overall score for the short term and make it more difficult for you to obtain additional credit before that new loan is paid back.

How can I get a loan with no credit and no cosigner? ›

Adam McCann, Financial Writer
  1. How to get a personal loan with no credit and no cosigner:
  2. Get a secured personal loan. Your credit, or lack thereof, doesn't matter as much when you put up collateral to secure a loan. ...
  3. Take out a credit-builder loan. ...
  4. Use your home equity. ...
  5. Borrow from someone you know.
28 Oct 2019


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