50% of small businesses fail within five years of opening, according to Bankrate–and the number one reason is a lack of money. But a founder doesn’t have to offer up their personal home, car, or other assets on the line as collateral to get business funding.
Can small business loans and alternative financing be secured without collateral? The good news is that there are business loan requirements without collateral, or you can explore other funding options that might be more accessible than a traditional bank loan.
The type of loan that has no collateral is called an unsecured loan. The difference between an unsecured loan vs secured loan is pretty simple.
An unsecured loan is financing like a personal loan, business line of credit, or student loan. If these loans are not repaid according to the terms, borrowers risk damage to their personal or business credit as well as being sent to collections.
A secured loan is financing like a mortgage or auto loan. If these loans are not repaid, the assets used as collateral (i.e., the house or vehicle) are seized. Secured business loans work similarly, and may use either business or the owner’s personal assets as collateral.
In other words, with an unsecured loan, your credit and finances are on the line, while with a secured loan, the assets you put forward as collateral are the guarantee on the loan.
If you want an unsecured loan, the exact requirements will vary from lender to lender. But generally, you will need the following things:
Good to great credit
Proof of assets and income
Reasonable existing debt
History of on-time payments
Traditional loans are not the only option for businesses to get the necessary funds. Here are two of the solutions Backd offers to help business owners.
Working Capital: This financing can help you close a cash flow gap whether it is seasonality or a new opportunity that has affected your needs. Funding is repaid in terms of up to 16 months with automatic daily, weekly, or semi-monthly payments. Learn more about working capital financing.
Line of Credit: A business line of credit works similarly to a credit card, where you have a credit limit but can reuse the funds once they are paid off. These are often great for covering short-term needs! Once you apply you get a decision within 24 hours and can repay weekly in either 6 or 12 months. Learn more about business lines of credit.
We offer these financing options to US-based businesses with a business bank account a brick-and-mortar address, that has been open for at least one year!
Companies that have been open for less than one year may still be able to get financing. Startup business loans are specifically structured to help business owners without collateral, revenue history, or business credit get the money they need. However, the interest rate, repayment terms, and the amount loaned will all be highly variable. Founders may have to apply to several banks before getting qualified and may have to put forward collateral to secure the loan.
A personal credit score in the mid-to-high 600s is usually the lowest credit score that will be approved for a traditional loan. However, your business also has its own FICO credit score, which will be used by the Small Business Administration and other lenders to judge your eligibility for financing. The Small Business Scoring Service (SBSS) ranges from zero to 300, with 160-180 being a competitive score to qualify for loans under $1 million. You may still qualify for a loan with an SBSS score under 160, but the amount will be less and the terms may be less competitive.
After your business has survived its first year, you be armed with the knowledge to prepare you to scale and grow. If you arrive at this critical point and are looking around for options, Backd has your back! The application takes as little as 3 minutes, and you’ll know within 24 hours if you have been approved for financing. If approved, the funds will be available to you within an equally quick timeline. That’s because Backd takes the success of your business and your need for financing seriously. You’ll find a partner that helps you grow your business on your terms. Apply now and get funded in a few easy steps.