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Finance & Accounting, Small Business Loans

How To Get Small Business Loans Without Collateral

Loans without Collateral

Kabbage small business loans don’t always require a mountain of paperwork or require you to sign your life away. In fact, there are many options these days for small businesses in any financial situation to receive financial support. Most small business loans, especially those guaranteed by the Small Business Administration, require the borrower to put up personal collateral. This gives the lender a peace at mind in case the borrower is not able to return payment. But what if your small business doesn’t have any collateral yet to guarantee? You may be asking yourself, “can I get a loan without collateral” and wondering if an uncollateralized loan is out of your league. But wonder no more – there are in fact lenders out there who will provide you with funding even without collateral!

Small Business Administration Backed Loans

The SBA guarantees most loans that go through banks. It is much easier to get an SBA guarantee if you put up collateral, but that is not your only option. You can also provide the SBA with your own personal guarantee. In doing so, the SBA can be certain that you will be held accountable for loan repayment. In fact, the SBA has a 7(a) loan program that just requires the borrower to show proof of positive cash flow for debt service and acquisition price. If accepted to this program, the SBA will guarantee 75 percent of any loss on the loan to the lender.

“The 7(a) Loan Program is SBA’s primary program for helping start-up and existing small businesses, with financing guaranteed for a variety of general business purposes. SBA does not make loans itself but rather guarantees loans made by participating lending institutions. In this way, taxpayer funds are only used in the event of borrower default. This reduces the risk to the lender but not to the borrower, who remains obligated for the full debt, even in the event of default.” – SBA 7(a) Loan Program 

Alternative Lenders

Although many alternative lenders do require a personal guarantee of cash flow, they do not necessarily require collateral. Kabbage is a great example of this. When you sign a loan agreement with Kabbage, you personally guarantee that you will pay back your loan, but you do not have to put up any real estate or personal collateral.

Four main kinds of alternative or online financing:

  • A term loan.This is a lump sum you borrow and repay in about four or five years based on set terms, including the annual percentage rate
  • A line of credit (LOC) gives you access to a set amount of cash that you tap when necessary. This is generally used by businesses that need short-term financing to bridge cash-flow gaps.

“A line of credit, abbreviated as LOC, is an arrangement between a financial institution, usually a bank, and a customer that establishes a maximum loan balance that the lender permits the borrower to access or maintain. The borrower can access funds from the line of credit at any time, as long as he does not exceed the maximum amount set in the agreement and as long as he meets any other requirements set by the financial institution, such as making timely minimum payments.” – Line Of Credit (LOC)

  • Invoice factoring, also known as invoice financing or accounts receivable financing, is an option for small businesses that deal with unpaid invoices. Instead of waiting to be paid, you can get an advance on those invoices, which you then pay back along with a fee when your customers settle their accounts.
  • Merchant cash advances offer a way to get an advance on future credit card or debit card sales.

Peer-to-Peer Financing

P2P lending doesn’t operate through traditional financial institutions; instead, it requires the cooperation of individuals. Individuals provide unsecured loans to borrowers based on their business plan. There are many websites and platforms that provide more information on how to apply for P2P financing. When receiving a P2P loan, everything is done online. Often times these types of loans have higher interest rates and shorter terms, but in most cases, everything is based on the credit history of the borrower.

In most cases, your chances of receiving a small business loan increase dramatically if you are able to put up collateral, so, if at all possible, wait until you have collateral or find some. When not possible, you have a few options to look at like crowdfunding, investors, or alternative lenders. Just because you do not have bank qualifications, do not give up on your dream and finding ways to finance it. For example, working capital from Kabbage allows small business owners to access their funding on an ongoing basis. Our small business loan application process makes use of multiple data points so we can comprehensively evaluate your business prior to making a decision. We know that if you have a truly great business that makes a positive impact on people’s lives, then you deserve a chance to finance your business and ensure that it will keep on thriving.

Want to learn more about the Kabbage process? Check out these helpful links:

Kabbage Team

Kabbage is here not only to provide access to the small business funding you need, but to also help you grow your business through free marketing tips, webinars, tools and more. Is there something you'd like us to cover or want to get your small business featured on our blog? Send us a note at content@kabbage.com.