Starting a business is a big challenge. When someone is trying to start or grow a business, capital is arguably the most important asset. On the other hand, it can be risky to put up collateral for a business loan. Qualifying for a small business loan without collateral (also known as an unsecured business loan or line of credit) can help a company get off the ground, invest in new inventory, or provide funding for mergers and acquisitions. For a young business, a loan without collateral can be a major plus. Nearly every business needs a steady cash flow to survive and a startup business loan without collateral can make this happen.
Think About the Approval Process
For those asking how to get a business loan without collateral, the first step is the credit history. The personal credit history of the business owner is going to matter. No, the credit history does not need to be perfect. On the other hand, the individual needs to show that he or she can manage credit and pay bills on time. In general, lenders will look at the last five years of the credit history. This will include any and all credit cards, which demonstrate the ability to handle revolving credit. This will increase the confidence of the lenders in the individual’s ability to handle a large line of credit without collateral.
Use Credit Wisely
With the credit history in mind, try to use credit cards wisely. Of course, in order to demonstrate the ability to handle credit, the credit cards need to be swiped. On the other hand, nobody should overspend on their credit limit. In general, try to keep credit card usage at around 30 percent. As an example, if the credit limit is $10,000, try not to use more than $3,000. This will keep the debt ratio intact and prevent the card from maxing out.
Pay All Bills On Time
In addition, anyone looking to build their credit score needs to meet their obligations. Missed payments, late payments, penalties, and accrued interest will all hurt the credit score. These blemishes on any credit history will make it hard to qualify for a start up business loan without collateral. In order to keep the credit score high, do not carry a balance. This means paying off the statement in full every time. At the very least, try to make more than the minimum payment.
Tips to Remember On Getting a Business Loan Without Collateral
When a business qualifies for a loan without collateral, it is important to remember the risks of this financing. Remember that loans without collateral often have higher interest rates and fees (unlike revenue based financing). They are meant for short-term financing and are not meant to be a long-term loan. On the other hand, they typically do not depend on the credit of the business and provide a nice source of emergency funds. Anyone who is nervous about taking on this type of loan should think about how much collateral is needed for a business loan because this might be a better option. On the other hand, for those looking for a loan that builds credit with lenient approval, a business loan without collateral could be the answer.