As a small business, securing a business loan without collateral is tricky, but some lenders are still willing to work with tenants and non homeowners. This is because lenders use collateral as protection against defaulted loan repayments, ensuring they get more of their money back should anything go wrong and they’re able to minimise their losses.
If you’re a small business owner, you might not have any business related collateral (such as a business property) and it’s understandable that you might be reluctant to put up your personal assets as collateral. That being said, business loans are often fundamental to investment and growth, so how do you work around this?
In this blog, we’re going to look closely at business loans and whether you’re able to get a business loan without collateral. If you’re looking for a way to fund future growth or see you through an unforeseen crisis but don’t have or want to put up collateral, read on as our lending experts explain everything you need to know about small business administration and loans.
What is Collateral and Why is it Needed?
When you borrow money or take out a loan or credit of any kind, you make an agreement with the lender that you’ll repay what you owe, most often along with interest, over a fixed amount of time. You’ll have an agreed repayment schedule and amount, and you’ll be expected to hit your payments on time and with the correct amount.
Unfortunately, things crop up that you may not have seen coming which can make it difficult or impossible for you to repay what you owe according to your credit terms. In these scenarios, the lender stands to lose money. To prevent a potential loss, the lender will typically require you to sign over some collateral, usually in the form of property or assets. When they do this, should you become unable to repay what you owe, the lender can sell your collateral to recoup their money. This is known as a secured business loan.
Can You Get a Business Loan Without Needing Collateral?
If you’re a small business owner, there’s a chance that you might not have any collateral to use to secure a loan because you might not have a large amount of personal assets or own business property yet. Sometimes, people put their personal property and assets up as collateral against business loans, but this can be risky and is a move that many people don’t want to make. In this case, a secured business loan where collateral is required won’t be a viable option, but that doesn’t mean you don’t have another choice.
Unsecured business loans are ideal for those who don’t want to secure collateral or who don’t have the business assets to do so. They work like any other type of small business loan: you agree an amount with a lender and set out repayment terms. The difference is that the loan isn’t secured against property or assets, hence it is unsecured. That being said, most unsecured business loan options do often require a personal guarantee from a director before a loan agreement can be reached.
How Do Unsecured Business Loans Work?
There are several advantages to taking out an unsecured loan for your business, including the following:
- Uses: The great thing about unsecured loans is that they can be used for almost anything business-related. Whether you need to cover unforeseen expenses, manage cash flow, pay bills, buy stock, complete a merchant cash advance, or refinance existing debt, an unsecured business loan can be used for anything business related.
- Eligibility: As long as your business has been trading for longer than six months, has a monthly turnover exceeding £5,000, and has a decent credit history, you’ll be eligible to apply for an unsecured loan. You don’t need to own properties or assets, but a personal guarantor (usually a company director) is generally required who has personal assets or finance that can be used if you cannot adhere to your borrowing agreement. If you have poor credit history, you may need to contact an alternative lender if the mainstream UK firms won’t offer you business finance or good interest rates.
- Figures and terms: For the most part, unsecured loans are flexible. Depending on the lender and your business, you can borrow a loan amount of up to £500,000 over the course of one month to five years, with repayment terms ranging from weekly to monthly. Interest rates on unsecured business loans are typically favourable and competitive.
- Application: Applying for an unsecured loan is usually fast and won’t require you to present business plans or forecasts as your eligibility will depend on your past performance. That being said, you will need to supply director details, bank statements, and account information. The guarantor may also need to submit their personal credit history to determine how reliable they may be if they need to meet the fixed monthly payments if you can’t.
- Settlement: One of the major advantages of an unsecured business loan over a traditional loan is that you won’t be penalised if you settle your loan early in the majority of cases, meaning you can recoup some of your interest through overpayments of your monthly or quarterly instalments, or early settlement.
Getting an Unsecured Business Loan with Aurora Capital
Are you looking for business loans without collateral? If so, Aurora Capital can help. We work across the board with a multitude of lenders who provide credit to businesses like yours without collateral. Applying for an unsecured loan online is easy, but if you would like to talk through your business loan options further to find out whether it’s the best option for you, please get in touch with us. Our expert team will help you to get a small business loan that works for you, working to secure a favourable interest rate and loan term that is compatible with your business growth and plans.
Visit our Knowledge Hub for more information about business loans, how to apply and more!