Can I get a Business Loan without Collateral Security?

All businesses need money to run. Whether you are a start-up trying to get on your feet or an established entrepreneur looking to expand your business, a secured business loan comes quite handy.

It’s common for lenders to ask businesses to provide collateral to finance their business loan. Collateral is generally an immovable asset – say property, equipment, machinery or even investments. When borrowers put up collateral, it reduces the risk borne by the lender. If in the worst case, the borrower is unable to repay the loan on time, the lender can take control of the pledged asset submitted by the borrower.

But, what if the borrower does not have collateral to pledge? This is where unsecured business loans come into the picture.

What is a Business Loan without Collateral?

As the name implies, it allows businesses to borrow money from lenders without submitting collateral or security. These loans are perfect for businesses that don’t have any collateral – like a property or expensive machinery that they can pledge.

Salient Features of Business Loans without Collateral

• No Collateral

As mentioned above, the borrower need not pledge any asset to the lender. This makes a business loan without collateral security ideal for small businesses and start-ups that are just getting starting and businesses in the service sector, as they usually do not own any substantial assets.

• Relaxed Eligibility Criteria

Unsecured business loan eligibility is not as difficult as people imagine. The loan procedure is quick and involves minimal documentation. Some banks even allow you to apply online and complete the entire loan application process online within a few days.

• Quick Availability of Funds

The time taken for verification of business loan collateral could range anywhere from a few weeks to even months. Hence, secured business loans take time for the fund to be approved and disbursed to the lender.

On the other hand, unsecured business loans do not have any collateral to verify. The bank checks your credit history and makes the decision. Once your loan is approved, the amount is disbursed directly to your bank account. You can use it for any business-related purposes.

How to get a Startup business loan without Collateral?

1. Evaluate whether you qualify for the loan based on your age. Most banks provide these loans to businessmen and women between the ages 25 to 65.
2. Consider your Business Performance. Another major criteria lenders consider is the performance of your business in the last couple of years. Lenders prefer businesses that show stable growth. Your business performance not only determines your loan eligibility, but also the amount you can borrow. Most banks offer up to 60 – 80% of the annual profit as the loan amount.
3. The number of years in business is another factor to consider. While most lenders prefer businesses with an experience of at least 3 to 5 years, some lenders also offer unsecured startup business loans, to businesses that are just getting started, provided they have a robust business plan.
4. Check your Credit History and Rating. Your credit history and credit rating is a numerical representation of your creditworthiness. It is one of the crucial deciding factors. A strong score boosts your loan eligibility.
5. Finally, choose the right lender. Compare different lenders on the market, evaluate the loan terms and conditions, to pick the perfect lender who meets your specific requirements.

Make sure to read the loan documents carefully before signing the loan agreement form. This helps you avoid discrepancies later on.