How to Get a Small Business Loan Without Collateral

Online loans, SBA loans, and bank loans are all types of Business Loans Without Collateral. While it is possible to obtain a small business loan without collateral, lenders often charge higher interest rates, impose additional fees, or require personal guarantees or lien agreements. This means you may pay more and risk losing your assets if you default on the loan. 

How Does a Business Loan Without Collateral Work

Typically, Business Loans Without Collateral are secured by collateral, such as real estate, vehicles, equipment, or savings. If a borrower fails to repay the loan, the lender can seize these assets to cover the outstanding balance. Collateral serves as a safety net for lenders, but it also increases the stakes for entrepreneurs. 

Borrowers without collateral need to provide alternative assurances to reduce the lender's risk. This could include a personal guarantee or a Uniform Commercial Code (UCC) lien. A personal guarantee allows lenders to access your personal assets in case of loan default, while a UCC lien grants them rights over a significant portion or even all of your business assets. 

To increase their chances of securing an unsecured business loan, small-business owners should highlight their financial stability, such as annual revenue and years in business. Even well-established businesses may face additional hurdles when applying for Business Loans Without Collateral. 

Small Business Loans Without Collateral 

Several financing options do not require collateral: 

1. Online Loans 

Online business loans are often easier to apply for and are funded faster than SBA or bank loans. However, they typically come with higher interest rates, making them more expensive. While collateral may not be required, some lenders still require a personal guarantee or a blanket lien on business assets. Online loans are ideal for businesses that do not meet traditional bank requirements but have a credit score above 600 and at least six months in business. 

2. Bank Loans 

A business line of credit requires only interest payments on borrowed funds up to a predetermined limit, while a term loan provides a lump sum upfront. However, obtaining a business loan from a bank is usually more time-consuming and challenging than securing an online loan. 

3. SBA Loans 

The Small Business Administration (SBA) does not require collateral for loans of smaller amounts. However, all SBA loans require personal guarantees from business owners with 20% or more equity in the company. Unsecured SBA loans are typically available through the CDC/504 or 7(a) loan programs, the two most common types of SBA-backed financing. 

Business Loans Without Collateral Requirements 

Most lenders have minimum requirements related to annual revenue, time in business, and the business owner’s credit score. Unsecured business loans often have additional conditions to protect lenders. 

Personal Guarantee – A personal guarantee not only gives lenders access to your personal assets but also signals your commitment to repaying the loan. 

UCC Lien – A Uniform Commercial Code (UCC) lien is commonly used in business lending. It acts as collateral against any future assets your business may acquire during the loan term. 

Because unsecured loans carry a higher risk for lenders, they often have higher APRs (Annual Percentage Rates) than secured loans. Online loans tend to have some of the highest APRs, whereas SBA loans and bank loans generally offer lower rates.

Self-Collateralizing Financing Options 

Some financing options use the purchased item itself as collateral, reducing the need for additional assets. While these are not technically unsecured loans, they allow business owners to access funds without risking other business assets. 

Equipment Financing – Small business owners can borrow money to purchase equipment, and the equipment itself serves as collateral. Banks, online lenders, and the SBA offer this type of financing. 

Inventory Financing – Retail and manufacturing businesses can use inventory financing to purchase products they plan to sell. Similar to equipment financing, the inventory purchased serves as collateral. 

Invoice Financing (Accounts Receivable Funding) – Business owners can borrow money against unpaid invoices to manage short-term cash flow issues. While unpaid invoices act as collateral, some agreements limit the lender’s ability to recover unpaid amounts, meaning the business owner may still bear some risk. 

Conclusion 

Obtaining a small business loan without collateral is possible, but it often comes with higher costs, stricter eligibility criteria, and added risks such as personal guarantees or liens. Understanding your financing options, improving your credit profile, and demonstrating business success can improve your chances of securing an unsecured loan at favorable terms.