Are you interested in getting a business loan without having to put up any collateral? If so, the first thing that you need to understand is that there are two major kinds of loans: unsecured and secured.
Secured loans require collateral to guarantee them. A car loan is an example of a secured loan because if you default on your loan, your vehicle can be taken back in lieu of the missed payments.
Collateral is required by many business loans as a form of security, however, there are also loans that do not require it.
There are also unsecured loans that are available to businesses. However, typically they carry higher rates and are the most difficult to qualify for. They have more stringent guidelines due to no collateral being required.
Let’s take a closer look at you where you may be able to obtain a business loan that does not require collateral.
Perhaps your business doesn’t have any collateral associated with it. There are still ways of connecting with a financial institution or a private lender using a personal guarantee. You may use a cosigner – like a relative who has a good credit history and a healthy bank account.
Or maybe you own some real estate or another type of valuable asset that a lender might consider as an acceptable personal guarantee for a loan.
In recent years it has become a lot more common to see entrepreneurs setting up websites to fund their businesses via crowdfunding companies. Basically, there are platforms where you can raise funds via social networks when starting your business.
Donors are able to give as much or as little as they want, and typically the business will offer them some kind of reward, bonus, or share in exchange for their donations.
Whenever you start a business that is franchised already, you can benefit from a brand that is already recognisable that offers sport from the franchise, a proven business model, and established sales.
Typically banks prefer to fund your business through franchises instead of brand-new businesses since they are a better-known entity that has a proven track record to back it up.
With venture capital, an outside group provides capital in exchange for part ownership. The percentage of capital to ownership may be negotiated. Normally, it is based on the valuation of the company.
Factoring involves a service provider fronting the money on your invoices that you have billed out, and then after your customers have settled their bill you pay them back. This allows your business to keep going while you are waiting for your customers to pay their invoice balances.
A person-to-person or peer-to-peer loan is an alternative to getting a bank loan. Often P2P loans are personal and allow borrowers to use the funds for various purposes. Borrowers are directly linked with investors in the social lending model so they can look through the loan applications on the website and select the one that they would like to fund.
Startup businesses with no or little history can benefit from working with a peer-to-peer lender. However, these loans are best suited for entrepreneurs who don’t mind putting up their own personal assets to secure the loan and who will be personally responsible for the repayment of the loan.
For example, the local government gave a land deal to a person with a farming business in NSW who grows nuts year-round to help the small business thrive. The government grant was given for major purchases.
He also asked for some smaller amounts of assistance from family and friends. When necessary he used personal credit cards.
However, in the end, the business ended up failing due to insufficient initial capital, despite the fact that his excellent nut production had a fairly wide distribution to local stores and restaurants.
Although it appeared that the company was successful, there simply wasn’t enough money to keep pace with the growth that was necessary to generate sufficient amounts of profit.
This is why diversification of loan options can be so important in the success of your business.
Tammy Richards is a seasoned finance writer with over 15 years of experience in the industry. With a keen eye for detail and a passion for helping people make smart money decisions, Tammy has become a trusted voice in the world of personal finance. Holding an MBA and drawing from her extensive entrepreneurial background, she offers valuable insights and practical advice to her readers.
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