How to Get a Business Loan with no Collateral

When the need arises for a small-business loan, whether it is to support your business's growth or to navigate through an unexpected crisis, it becomes crucial to consider whether collateral will be required. Collateral serves as a form of protection for the lender in case you are unable to repay the loan for any reason and default on your payment obligations. If your business lacks sufficient assets that can be offered as collateral, securing a no-collateral business loan becomes a top priority.

Fortunately, there are business loan options available that do not necessitate collateral as a prerequisite for approval. However, it is vital to conduct thorough research before applying for such loans to ensure you are aware of what to expect.

However, it's important to note that the absence of collateral doesn't pose a barrier to obtaining a 7(a) loan as long as you meet the other requirements outlined by the SBA.

Explore Your Choices for Business Loans without Collateral 

The initial step towards obtaining a collateral-free business loan is to familiarize yourself with the available options. Various lenders offer loans that don't require collateral, but it's important to note that the terms and eligibility criteria can vary significantly.

Consider SBA 7(a) Loans 

The Small Business Administration (SBA) plays a vital role in guaranteeing loans for small-business owners through their network of partner lenders. When seeking working capital, you can explore several SBA loan programs, with the 7(a) program being the most popular. One advantageous aspect of the SBA 7(a) program is that loans up to $25,000 don't necessitate collateral, which can be beneficial if you only require a smaller loan amount.

For loans exceeding $350,000, the SBA requires lenders to secure the loans to the fullest extent possible, up to the loan amount, typically through collateral. If your business assets aren't sufficient to fully collateralize the loan, lenders may consider using your personal real estate as collateral. 

SBA Loans for Disaster Relief 

Apart from the 7(a) loans, the Small Business Administration (SBA) provides disaster relief loans to businesses that have suffered losses due to natural disasters or economic crises. For instance, if a business has experienced financial setbacks due to a government-mandated shutdown, they may be eligible to apply for an economic injury loan.

When it comes to SBA loans, the down payment required can range from 10% to 30%, depending on the specific loan and the borrower's circumstances.

Similar to the 7(a) loans, disaster loans below $25,000 do not necessitate collateral. However, if you are seeking a loan amount higher than that, collateral is typically expected. Nonetheless, it's important to note that the SBA does not deny loans solely based on a lack of collateral. Other factors are taken into consideration as well.

Online and Alternative Solutions for Small Business Loans

When it comes to fulfilling your business's working capital needs, online and alternative lenders can offer a diverse range of loan options without requiring collateral. These financing solutions encompass various types, such as:

While some form of security might be necessary for these small-business financing options, it does not necessarily involve cash or tangible assets that you must provide upfront. For example, invoice financing allows you to leverage your outstanding invoices to secure a loan.

With a merchant cash advance, you borrow against the value of your future credit card receipts. In the case of equipment financing, the equipment you are purchasing or leasing serves as collateral for the loan. Peer-to-peer lending presents another collateral-free alternative for small-business financing. 

Peer-to-peer lending platforms connect investors with business owners in need of loans. These investors pool their funds to provide the loan, and business owners repay it along with interest, similar to any other loan. These loans are unsecured, meaning collateral is not required.

It's worth noting that certain no-collateral loans, like merchant cash advances or invoice financing, utilize a factor rate instead of an interest rate to calculate borrowing costs. 

Depending on the terms of the financing and its prompt repayment, the factor rate can translate into an effective annual percentage rate (APR) ranging from two to three digits.

Assess Your Business Finances to Determine Eligibility 

Qualifying for certain types of no-collateral small-business financing may present varying levels of difficulty. For instance, securing an SBA 7(a) loan requires a minimum of two years of operational history, compliance with the SBA's definition of an eligible small business, and meeting the credit score and revenue requirements set by SBA lenders. Additionally, the SBA expects businesses to explore all other borrowing avenues before applying for a 7(a) loan.

On the other hand, the requirements for online and alternative lenders tend to be more flexible. For example, a lower credit score may not hinder your chances of obtaining a merchant cash advance or invoice financing. Furthermore, it may be easier to secure startup loans from online or alternative lenders that only mandate a minimum of six months of operational history. 

The second step in obtaining a business loan without collateral requirements involves evaluating your business's overall financial standing. This includes performing the following tasks:

This assessment serves a dual purpose: determining your creditworthiness for a loan and evaluating your capacity to repay it. Failing to repay a loan can have a detrimental impact on your credit score, making it more challenging to secure any form of financing in the future.

Be Prepared for Personal Guarantees or UCC Liens Instead

While it is possible to obtain a small business loan without the requirement of collateral, it's important to understand that lenders may still impose other conditions. Specifically, you may be requested to sign a personal guarantee or consent to a Uniform Commercial Code (UCC) lien. 

A personal guarantee, entails an agreement where you personally assume responsibility for repaying the debt incurred by your business. Personal guarantees are commonly required for no-collateral loans and small-business credit cards. Since the lender lacks collateral to seize in case of non-payment, the guarantee provides them with the option to pursue legal action against you personally in order to recover any outstanding debt.

On the other hand, a UCC lien operates differently. It functions as a comprehensive lien that enables a lender to lay claim to any or all of your business assets if you default on a loan. Therefore, even if you did not offer collateral as part of the loan agreement, a UCC lien would grant the lender an alternative means to seize assets should you fail to fulfill your payment obligations.

It's important to familiarize yourself with these potential obligations and carefully consider their implications before proceeding with a loan agreement.

Thoroughly Evaluate the Loan Terms Before Committing

Once you have applied for a collateral-free small-business loan and received approval, it is crucial to carefully assess the terms and conditions of the loan. When reviewing the loan agreement, pay close attention to essential factors such as the interest rate, annual percentage rate (APR), payment schedule, and loan term.  

It is important to understand the duration required to repay the loan and the overall cost of borrowing, considering the inclusion of interest and fees. Additionally, take a moment to examine the fees associated with the loan. This may include charges such as a loan origination fee or a prepayment penalty. If your business's cash flow permits early repayment, you wouldn't want to incur any penalties for doing so.

Lastly, consider whether a personal guarantee or UCC lien is necessary as part of the borrowing agreement. While you may have every intention of repaying the loan, it is vital to comprehend how these requirements might impact your business if, for any reason, you are unable to fulfill your obligations. Being aware of these potential ramifications will help you make an informed decision regarding the loan agreement.

Is Acquiring a Small Business Loan Challenging? 

Securing a small business loan can indeed pose challenges, particularly if you lack a strong personal credit score and cannot demonstrate stable revenues from your business. These factors significantly increase the risk for lenders. Depending on various circumstances, loan offers may require collateral or come with high interest rates if the bank considers the applicant's profile less robust. Such requirements can put a strain on a business. If you find that your credit score or business revenues are insufficient, exploring alternative financing options like funds from friends and family or crowdfunding might be more suitable.

Are Down Payments Required for SBA Loans? 

Yes, down payments are required for SBA loans. The specific amount of the down payment varies depending on the loan type and borrower; however, a typical down payment is around 10%. In certain cases, this percentage can reach as high as 30%. 

Can SBA Loans Be Used for Personal Purposes? 

SBA loans cannot be utilized for personal use. These funds are strictly meant for business-related expenses, such as covering operational costs, business expansion, and employee salaries, including your own. SBA loans may not be used to address personal debts, such as mortgage payments or personal credit card bills.


Obtaining a loan for your business can be a challenging task, particularly when collateral is required, increasing your personal risk. Fortunately, the Small Business Administration (SBA) serves as an excellent resource for business owners, offering financing opportunities without the need for collateral.

Apart from the SBA, alternative options are available for obtaining loans without collateral. However, it is crucial to carefully examine the terms and conditions before signing any loan agreement. Loans without collateral may impose strict requirements or higher interest rates. When making a decision, consider which parameters align best with your needs and those of your business.