3 Most Common Types of Self-Secured Business Loans

The idea of applying for a business loan seems daunting to many small business owners. But you can’t blame them. Many entrepreneurs are hesitant to apply for a business loan because they don’t like to sign off any major personal asset.

Fortunately, there are a handful of business loan programs where you don’t have to pledge a personal guarantee since the use of the loan acts as its own collateral. With that said, here are three of the most common types of self-securing loans that you can use as an alternative to unsecured business loans:

1. Invoice Financing

Invoice financing enables business owners to sell their pending invoices to third-party companies at a discount. Depending on the agreement, some invoice financing companies assume the collection of debt, while others do not. Most invoice financing companies generally give you 85% to 90% of the total invoice value up front. They will send you the remaining 10% to 15% (minus transaction fees) once your customers pay their dues.

If your business is experiencing cash flow issues due to unpaid invoices, invoice financing is a great financing solution. You’ll be able to obtain capital without having to put up a personal guarantee since the invoices themselves serve as collateral.

2. Merchant Cash Advance

A merchant cash advance (MCA), or a business cash advance, is for business owners who need working capital up front. Whether you need to seize a business opportunity or pay for unforeseen expenses, a merchant cash advance is an excellent financing option.

Technically, an MCA is not a loan, but rather an advance against your future debit or credit card sales. With an MCA, you only have to pay back the advance when your business makes sales. This means you don’t have to follow a regular payment schedule. However, this convenience comes at a price. A merchant cash advance usually charges higher fees compared to other types of small business loans.

3. Equipment Financing

If your business needs to purchase or lease equipment and machinery, equipment financing is a great solution. You can use it for any equipment need – from vehicles, computers, printers, machinery, and even furniture. If you’ve ever loaned a car before, then you already have an idea on how equipment loans work. The amount you can borrow is based on the type of equipment you need, its price, and whether it’s new or not.

And just like a car loan, the equipment you’re looking to purchase acts as collateral for the loan. If ever you default on the loan, the lender has the legal right to repossess the equipment. Any of your personal or business assets are safe. And even if your business fails, equipment financing won’t put you in debt.

If you think any of these self-securing loans are right for your business, SMB Compass can help. Our team of professionals will guide you throughout the entire loan process. You can give us a call at (888) 853-8922 or email us at info@smbcompass.com to get a free quote.

Hi, My name is Rumzz and I am a writer as well as a financing advisor and you can contact me for discussing business finance opportunities.