How to Get a Business Loan Without Collateral

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Growing a small business is tough. Every week, you have customer requests and employee issues to manage. That’s why many entrepreneurs want to know how to get a business loan without collateral. After all, you don’t want to lose your house or car if you have problems paying back your business loan.

Why Get A Business Loan?

Business loans are a proven way to get more cash into the business and achieve growth. Here are some of the ways you could use a private business loan to grow your company.

Open a second retail location

If your business sells to retail customers, opening a second storefront will help you to sell more products and increase market share. However, there are often significant startup costs associated with opening new locations such as construction, leasing, and furniture. A business loan can provide the needed cash for such expansion.

Fund research and development

You have a new product idea and need to build a prototype. As with a store expansion, R&D expenses can be quite valuable. However, such efforts take months or years to pay off. If you have an R&D program in place, a business loan may provide you with cash flow to bring your product to life.

Keep the lights on during cash flow problems

Your company may give customers 30, 60 or even 90 days to pay their invoices. Such payment terms are common in some industries, such as selling products to large retailers. However, these payment terms can destroy your company’s ability to operate in the short term. In that case, a business loan can help you keep the lights on while you wait for customers to pay.

Optimize your financing (save money on interest payments!)

You may have previously taken out a business loan at a high-interest rate. For example, if you used a credit card to start your business, you might be carrying a loan with an interest rate of over 20%. In that case, obtaining a new business loan at a lower interest rate will help you to save money on interest.

Getting a Business Loan Without Collateral: Your Top 5 Options

Before we look at the options, consider the perspective of a lender. All lenders want to be paid back. If you cannot offer collateral for the loan like A and B, you may have to pay a higher interest rate or agree to other terms. Depending on the amount of money you need, you might use one or more of the following financing sources.

1. Bank Loans

Banks offer loans, lines of credit, and other lending options to companies. Unlike other sources of business financing, banks often provide promotions and discounts to attract new business customers. Further, you probably have an existing relationship with a bank, which makes asking for a loan less intimidating. Finally, banks tend to have deep pockets. If you need millions of dollars in financing, working with a bank makes sense.

There’s just one problem with getting a business loan from a bank. If you want a business loan without collateral, many banks will not want to work with it. From the bank’s perspective, if you provide no collateral, that decision gives them less peace of mind about the loan. As a result, they may refuse your request, insist on a high-interest rate or require you to complete a more complicated loan application.

It’s worth talking with your bank to find out about the options but go into those discussions with a realistic expectation.

2. Business Credit Cards

Most credit cards require no collateral. That’s why many small businesses rely on credit cards to get their business started. With a very small business, borrowing $5,000 to $20,000 through a business credit card sometimes makes sense. Unlike traditional B2B bank loans, it is relatively easy to obtain a credit card. Of course, there’s no such thing as a free lunch! Expect to pay relatively high amounts of interest: WalletHub research found that new credit cards carry an average interest rate of 19%.

Tip: Even if you do not rely on a credit card to start your business, it can be valuable to use a credit card for your business. You may be able to get purchase protection and extended warranties on items you purchase for your business. Also, cash back and other rewards programs can ease your cash flow situation. That said, do not rely on rewards to keep yourself afloat. These programs sometimes change without warning.

3. Borrowing From Friends and Family

Who already knows and trusts you the most in life: family and friends. That’s why many small business owners ask those near and dear them for help. Unlike bankers, friends, and family do not have demanding shareholders who require high profits. Nor they have to meet fulfill costly regulations. Further, your strong reputation makes the discussion easier.

There are some significant limitations and problems associated with relying primarily on your social network for business loans without collateral. If your immediate network lacks significant liquid assets, they will not have the necessary capacity to provide a loan. Next, there are dangers involved in mixing business and social relationships. If your business plan does not unfold as expected and you have problems repaying, will your family understand? They may sound understanding right now, but if they are counting on being repaid a large amount of money, the whole situation is different.

If you insist on seeking a business loan from friends and family, we recommend documenting your arrangement in writing. Specify the loan amount, purpose, interest, and repayment schedule. It would be best if you also described how disputes will be handled in the event they occur.

4. SBA Loans: Getting Financial Assistance From The Government

Did you know that some government programs exist to help companies and sole proprietors grow? The government wants companies to grow since they provide jobs to the population, new products, and tax revenue.

However, there are significant challenges with seeking government assistance. If you need funding in the next week or two, it is unlikely that a government program will be fast enough to help you. Further, you will have little or no capacity to negotiate terms with a government representative because their program is governed by laws and regulations which limit flexibility.

To help you pursue this option, explore the following government programs for small business.

  • Small Business Administration. The SBA offers a service to help small companies obtain loans. Note that there are multiple eligibility criteria which restrict which kinds of companies can receive such loans.
  • GovLoans. This website offers links to a variety of specialized government loan programs for small business. For example, you can apply for “economic injury disaster loans” if your business has been damaged in certain kinds of disasters. Very small companies may benefit from the microloan program (the average loan amount is $13,000).

Obtaining a government business loan without collateral is going to be difficult. After all, governments are responsible to the public for how they spend public funds. There’s one more way to get small business financing.

5. Obtain a Merchant Cash Advance

If the thought of signing up with a business credit card with a 20% interest scares you, there is an alternative. There are alternative lenders who offer merchant cash advances which have considerable flexibility for small companies. Let’s review the advantages and disadvantages of this loan option.


  • Approval Speed. In contrast to banks which can take weeks to make a decision, a merchant cash advance provider like Iruka Capital works faster. In most cases, you can be approved in two to three business days. That approval speed could make the difference between meeting and missing payroll for your employees.
  • Save Time on Paperwork. The application process is relatively simple for most companies. Standard reports from your accounting system and sales data will generally be adequate to start the application.
  • Flexible Payments. With a traditional loan, you are expected to make payments every month. That’s where a merchant cash advance is different. Since repayment is based on your sales volume, if you make zero sales in a month, you will not make any payments. If you have a seasonal business or unpredictable sales, a merchant cash advance is a good choice.
  • Bad Credit Accepted. If you have bad company or personal credit, it can feel impossible to get a business loan without collateral. A merchant cash advance is different. Since this financing is based on sales volume. Find out how to get a restaurant loan with bad credit.


  • Minimize Sales Volume Required. Since a merchant cash advance is focused on your sales volume, lenders will expect a certain minimum sales volume. For example, Iruka Capital expects to see $10,000 per month in sales from credit cards or bank deposits.
  • Profit Margin Impact. If you have very small profit margins, a merchant cash advance may hurt your profitability. However, these charges must be put in the context of other options available to you, such as business credit card payments.

Weighing the options: 5 Questions To Answer To Make A Smart Choice

The business loan options available to you as a small business owner depend on a few factors.

Let’s review them quickly.

  1. Do You Have Collateral? If you cannot provide collateral (e.g., your house, a car, or another significant asset), some financial options like traditional bank loans will not be available.
  2. What Is Your Credit History? Borrowers with high credit scores have more options than borrowers with a history of credit problems.
  3. How Much Do You Need? Each lender will have a different loan maximum they are willing to provide. If you require a large amount of money for expansion, you may need to work with multiple lenders.
  4. How Much Money Does Your Company Produce In Profit? Lenders want to know how you are going to pay them back. If you can demonstrate your company is producing steady profits, that will open more options for you.
  5. What Are You Using The Money For? You should think carefully about how you answer this question since every lender will ask it. Funding expansion to new locations, new products, or purchasing new equipment are generally good reasons for a business loan. On the other hand, paying for cosmetic upgrades to your office may not be a good fit.

Your Next Step To Get A Business Loan Without Collateral

We’ve covered many business loan options today. It might feel overwhelming when you consider all of the different ways you can get money to grow your business. To simplify the process, we recommend going answering these questions:

1) How would your business improve if you had more cash on hand?

Take ten minutes and write out all of the ideas you have for improving your business. If you run a dentist office, you might upgrade all of your equipment and provide more training to your staff. You might sponsor a major industry conference to attract more customers. You could develop a new and improved version of your product and charge higher prices.

2) What is the cost of NOT taking on a business loan?

Remember to count the cost in terms of direct expenses (e.g., failure to pay supplier invoices on time) and indirect costs (i.e., difficulty sleeping because you’re worried about money). If you do not take a loan, your completion may use financing to grow faster than you.

3) Talk to your accountant

Now that you have some ideas of how you can grow your business and the cost of inaction get some outside advice. We recommend meeting with your CPA for an hour to discuss your business loan idea. They may give you some ideas on lenders to speak with and help you prepare your documentation.

4) Contact three lenders to discuss business loan options

Lending to small companies is a competitive industry. That’s why we suggest that you speak with at least three lenders. If you encounter unclear terminology, ask for a plain English explanation. Once you understand the options, you can choose which loans to use.

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