For many businesses, especially small businesses with little or no credit history, applying for a business loan without collateral is the only option to receive business finance. However, it may be difficult to get a business loan without collateral, because it means lenders will have little or no security to back up their loan in case repayments are not honoured: this is a very risky business for these lenders.
There are three major ways to get a business loan without collateral in the UK: using small business administration backed loans, alternative lenders or peer-to-peer financing.
Small business administration backed loans offer guarantees applying to most loans provided by banks. Although collateral surely helps securing these guarantees, personal assets can be used to apply to these small business administration backed loans. Some loan programs only need the borrower to show evidence of positive cash flow for debt service and acquisition price. Under this system, small business administration backed loans may guarantee up to 75 percent of any loss on the loan to the lender.
Banks are not the only lenders. Many alternative lenders exist, which require a personal guarantee of cash flow, but no collateral. One such alternative lender is called Kabbage, and it requires the business owner or director to personally guarantee the loan, but does not involve pledging real estate or personal collateral.
Peer-to-Peer Financing is another option, where banks are not involved. Individuals may provide an unsecured business loan without collateral, based on business plans. This business finance is usually found and processed online. Although higher interest rates and shorter terms will apply, everything will depend on credit history of the borrower.
- How to apply for a business loan?
- What is a business loan broker?
- How to get a business loan from the government?