What Are No Collateral Business Loans?

What Are No Collateral Business Loans?

When you want to grow your business, obtaining a small business loan is a common approach for making it happen. However, there are a variety of loan types that can be considered, including “no collateral business loans.”

No collateral business loans can be defined as loans that utilize a borrower’s promise to pay as security, versus a physical or tangible instrument of value. In a collateralized loan, like a car loan, failure to pay means that a lender can repossess the item used as collateral. With no collateral business loans, however, no physical item is placed as security for the new loan.

As many small business owners have discovered the hard way, in order to get, sometimes you have to give. This is especially true when it comes to obtaining loans. Oftentimes lenders will require owners to pledge collateral against a loan. Lenders use secured loans as a way to cover their bases in case the borrower defaults.

This way, even if a business owner is unable to pay back their loan, the lender has some recourse in the form of selling whatever asset has been pledged to cover the costs. However, this isn’t always a viable option for business owners, which is why unsecured, or no collateral, business loans may be the ideal alternative.

The Versatility of No Collateral Business Loans

The benefits of both collateralized and no collateral business loans are distinct. Loans involving the use of collateral will typically have lower interest rates and longer terms, which can provide a low payment. No collateral loans are usually of a shorter term and have a higher interest rate. This can drive up the overall cost of the loan because of significantly higher risk business loan to the lender.

No collateral business loans, however, are versatile loan offerings that can be used for practically any purpose. An example is using a no collateral loan to pay outstanding business taxes. By taking out a small, no collateral business loan, taxes can be paid and any collection efforts stopped.

No collateral business loans are also great for small business owners looking for direct capital to expand or improve their businesses. This is because there is no chance that they will lose their personal assets in a worst case scenario.

The Downsides of Unsecured Business Loans

There are a few issues associated with unsecured loans that can make them less than ideal for many small business owners.

No collateral business loans are difficult to get from traditional banks. For one thing, loans with no collateral requirement are inherently higher risk for banks, which means there are exacting standards for applicants and they will often disqualify business owners due to “high risk loan” business models, bad credit, and other issues.

Additionally, unsecured funding will have higher interest than other programs and rigid payback structures that can put excessive strain on business cash flow.

Business owners may find that because of the difficulties getting approved for no collateral business loans, they may not even be eligible for the funding they require. Even if they are approved, they may be lumped into a generalized program that is not accommodating to the needs of their unique business.

Alternatives for Business owners

Premier Business Lending understands today’s small business owner and their financial needs. Our goal is to help navigate your business through today’s financial marketplace while providing long term financial solutions and support for the small business.

Everyday small business owners deal with the daily stresses of running their businesses. And because of unexpected economic challenges, or business opportunities, there are many times in which additional capital is a real need. We provide quick online lending along with loan terms as short as three months and as long as five years. Premier Business Lending has become a significant resource for today’s medium to small business owner.