Business owners who are just starting their own business may have trouble finding a bank that is willing to give them a loan without providing something for collateral. Usually, collateral can be anything a business owner owns, whether part of their business or personal assets. This can include property, machinery, and vehicles. Luckily, even if you do not have anything to put up for collateral, there are still options open to you.
Unsecured Lines of Credit
An unsecured line of credit is similar to a loan, but there are some key differences. Firstly, it is important to stay brave in the face of the term “unsecured.” This simply means that there is no collateral backing up the loan. There is still a bank backing the loan, so there isn’t anything riskier about secured lines of credit vs an unsecured line of credit, at least for the borrower.
What differs a line of credit from the average loan the most is the way the money is distributed. If someone takes out a $20,000 loan, they get all the money at once and need to pay back the whole amount, plus interest. If someone gets a $20,000 line of credit, they have access up to $20,000 total. They can take out $10,000 one day, $5,000 a while later until they hit their $20,000 total. When they are done taking out money, they only need to pay back what they used, including interest. So, if they only do end up taking out $15,000, they do not need to pay back the remaining $5,000, as they never really took it out.
SBA 7(a) Loan Program
The Small Business Administration offers a large variety of loans to small business owners. One type of loan they offer is the 7(a) loan. Even within this loan category, there are over half a dozen more specific loan types. Because of this, there is something for every business owner– even those without collateral.
If a business owner does not have collateral, a loan officer will instead ask to see the business’s financial history paperwork. This can include anything from invoices to tax returns; it all depends on the specific bank. What the bank really wants to see is that the business’s finances are taking an upswing. Prove your profit is positive, and you may earn a loan.
Whether you want to take out a loan or a line of credit, there is something available to business owners who do not have collertal. Have all of your business’s financial paperwork in order. If your business history is great, the loan officer will be likely to decide in your favor.