New businesses which are unwilling or unable to offer any asset as security to obtain a loan have the option to get a start up business loan without any collateral. However, it is quite rare and difficult to get an unsecured business loan. Very few business lenders dare to take the risk of working with start ups with no history to show as unsecured business loans for bad credit is a serious issue. Unsecured loan for new business is not easy to get, but we discuss here some of the best options for start up business loan without any collateral.
Unsecured Business Lines Of Credit
Business lines of credit are some of the best financing options as they offer borrowers flexible and revolving capital according to their needs. Normally, traditional lenders require some collateral, but off late many alternative lenders have started to offer unsecured business lines of credit. They offer convenient revolving funds without the requirement of pledging assets as security. If, as a start up, you need access to quick recurring funds, this could be a good option.
How Unsecured Lines Of Credit Work
Secured lines of credit are just like any secured loan where borrowers have to pledge some asset to get them approved. With unsecured line of credit there is no need to risk your assets to get the financing. Otherwise, there is no difference between secured and unsecured lines of credit. You get access to funds that you can use as and when required. You have to pay back what you use with interest. Once you pay back, your original borrowing limit is restored. However, unsecured business lines of credit come with higher interest rate and lesser capital approval as they carry more risk than secured loans.
Merchant Cash Advance
Merchant cash advances are one of the easiest start up business loans to get where collaterals are not compulsory. Also known as cash advance loan, it is a quick and easy way to get a start up business loan without any collateral. Companies dealing in merchant cash advance, offer you lump sum capital to grow your business. In return, you allow your lender to get a slice of your daily credit card sales. With poor credit scores, where you don’t qualify for other business loans, merchant cash advance with no requirement for collateral, can meet your financing needs. Merchant cash advances, however, are the most expensive financing solution available in the market for new businesses.
Why Merchant Cash Advances Are Expensive
Merchant cash advance companies generally quote their price in factor rates, usually ranging between 1.18 and 1.48. You have to multiply that factor rate with your loan amount to arrive at the figure you owe to the lender. When you convert that factor rate to APR you’ll find that your merchant cash advance APR can balloon uncontrollably, often reaching triple digits in the worst case scenario.
The bottom line on merchant cash advance is that as a small business owner who needs capital but can’t offer collateral to get business loan, merchant cash advance can be the only viable option. While they may fit your requirement to get business loan without any security, they should be the last option for your business financing.
Business Credit Cards
If you are just starting your business and need start up business loan where no collateral is required, you should consider getting business credit cards. It might be your best option if you want start up business loan without any collateral. Generally, in the initial stages of your business you do not want too much financing. As you don’t know what kind of costs will come your way, taking loans that can be difficult for you to handle doesn’t make sense. When you need small capital for your start up, business credit cards can be a good option.
When To Use Business Credit Card As A Loan
There are a few thumb rules as to when you should choose business credit card over a loan. Mentioned below are some of those situations where business credit card should be preferred over a loan keeping in mind that unsecured business loans for bad credit can be an issue.
- You don’t have enough time to wait for a loan to be sanctioned.
- You need flexibility with your loan.
- You are short on time to start your business.
- You have strong personal credit and can get personal loan.
- You don’t have any collateral to offer.
- You are confident of repaying what you borrowed.
To sum it up, business credit cards are an affordable start up financing option till the time you get your business up and running. Additionally, they give you the liberty to leverage your personal credit to get business funds without having to mortgage your personal assets as security. Business credit cards are a great way to tide your business over till you qualify for easier and cheaper funding.
Sonia Sharma has been working as a professional charter account at loanClix – Best home loan finance company in India. She loves to share excellent stuff about home equity loan, low interest personal loans, loan against commercial property, business working capital loan, etc.