Starting a new company is an exciting undertaking, but at the same time a challenge. It offers great opportunities, but also great risks. When you need financial assistance in the form of a business loan, that loan often needs to be secured by assets. That simply poses a greater risk. But can you get a small business loan without collateral?
A lot of time, energy and resources go into a small business. This effort often brings only very small returns in the first few months. Therefore, the help of a small business loan may be necessary to get your business off the ground. The costs can add up quickly and it can be difficult to take the risk when you have to put up your home or car as collateral. So let’s discuss your options. You don’t have to risk your assets to get a small business loan.
What is a small business loan?
First, let’s look at what a small business loan is and how to apply for one. When starting a small business, there are many unknowns and challenges that arise along the way. Understandably, when you take out a loan, many lenders expect you to secure your loan with collateral. This reduces the risk of financing your business idea.
By lending you the money, they want to offer something of equivalent security in return for the loan. This is often your house, your car or another expensive item. The risk is of course yours again. As a result, it can become a risky venture and prevent you from pursuing your business dream. So can you get a small business loan without collateral?
Can you get a small business loan without collateral?
The simple answer: yes! These are simply referred to as unsecured loans and are offered by alternative lenders. These lenders check the strength of your business and approve it based on their assessment. This means you must have bank statements on hand and a good credit rating. You can generally borrow up to $600,000, depending on your company’s financials and how long your business has been in business.
If you are just starting your business and want to take out a loan, this is also an option, but it is much more difficult. Most non-lenders want to have a good overview of your earnings for a year or so to believe you’re worth the risk.
Things to consider before taking out a business loan
We explained that you know that you can get a small business loan without collateral. Next, here are some things to consider before proceeding.
- Do you have a business plan? This is a detailed plan that addresses your business or future business and your potential earnings. Whether you want to take out a loan or not, this is a good practice when starting your own business. It is a Outline for your company with goals, strategies and details that show how you want to be successful.
- Check your cash flow: Before taking out a loan, take a look at your business plan. Check that you have the right measures in place to ensure you can make the repayment. Look at your potential earning potential and see how it matches your loan repayments.
- Be prepared for interest: If you take out a loan without collateral, you can expect to pay higher interest on the loan. This needs to be factored into your cash flow. It’s also important to look at the fees involved. One of the biggest mistakes when taking out a loan is not to underestimate the costs involved.
- Wait: Although you may need a loan to start your business, it is often better to get the business up and running before applying for the loan. This gives you the opportunity to provide the lender with a record of sales. Show why you’re a good risk.
- Do your research: Don’t just go to the first lender that says “yes.” Shop around and make sure you get the best deal possible for your business. The qualifying factors for non-traditional lenders will vary significantly. It is therefore helpful to look around to see what these are before applying.
The best tip is to make sure you are prepared. Have your business plan ready. Be clear about why you are taking out a loan and what you want to spend the money on. This gives you more guidance when applying for a loan. It will also help you weigh the costs involved versus the benefits to you and your business.
Take out a business loan
Can you get a small business loan without collateral? Yes. If you are ready to take out such a loan, be sure to speak to an expert before proceeding. Banks are unlikely to approve an application if they do not have assets with which to secure their financing. Therefore, your best choice is probably a private lender. The Australian Lending Center team can give you the best advice on which loan is suitable for your needs and what else you need to know before you apply.
