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Startup Business Loans With No Collateral: What Are Your Options?

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A startup business loan with no collateral could be a way to get funding to launch your small business without risking your assets, especially if you have bad credit.

But getting a loan without having to put up assets as collateral — also called an unsecured business loan — can come with its drawbacks. Unsecured loans often come with higher interest rates, shorter repayment terms and even a personal guarantee.

What is a startup business loan with no collateral?

Unsecured business loans allow you to borrow money without having to put up assets as security for repaying your loan. In contrast, secured business loans require a guarantee of repayment in the form of high-value collateral. Commercial real estate loans and equipment loans are common examples of secured business loans, where a building or piece of equipment could be repossessed if you fail to repay your loan.

Compared to their secured lender counterparts, no-collateral business lenders face a higher risk of borrowers defaulting on loan repayment. No-collateral lenders evaluate factors like your credit scores, business history and annual revenue to determine your creditworthiness. As a result, unsecured lenders may utilize the following loan agreement clauses to mitigate the risks of lending you money:

  • Personal guarantee. You may need to sign a personal guarantee in order to get your loan, even though an unsecured loan doesn’t require collateral. The guarantee binds you to an agreement to repay the loan out of your own pocket in the event that your business is unable to do so.
  • Blanket UCC lien. As a condition of your unsecured loan, your lender could also require that you agree to a blanket UCC lien on your company assets. If your business can’t repay the amount you borrow, the lien allows the creditor to seize those assets in compensation for the remaining debt.

5 options for startup business loans with no collateral

If you need a startup business loan that doesn’t require any collateral, several of these options may be a good fit depending on how much money you need, how you want to use the funds and how quickly you need the cash in hand. Lenders will consider your eligibility based on a series of factors, which will typically include your track record with credit, length of time in business and annual revenues.

1. SBA 7(a) loans under $25,000

The United States Small Business Administration (SBA) offers financial assistance for small businesses through the SBA 7(a) loan program. While most SBA 7(a) loans are secured, some types waive the collateral requirement for business owners who borrow $25,000 or less. Note, however, that SBA loan applications can take several months — so as long as the funding isn’t needed immediately, SBA 7(a) loans can be attractive for many small business owners.

SBA eligibility criteria

SBA loans are desirable for their relatively low interest rates and long repayment times, but eligibility criteria is often more stringent than with other types of loans. As a result, getting approved for an SBA 7(a) loan can take much longer than other types of funding — up to several months — as lenders process your application.

2. Online business term loans

A term loan is the most standard form of lending, where you receive a lump sum of money and pay it back in fixed installments over a certain length of time. Term loans can be long term over several years or short term over a few months, and interest rates can vary wildly based on the duration of time you choose.

Startups can benefit from term loans, which tend to be straightforward compared to other sources of funding. In particular, online-only lenders can be beneficial for startup businesses, since many alternative creditors are willing to accept lower credit scores and shorter time-in-business history, which expands options for businesses with thin or poor credit. But while online lenders are convenient for quick, accessible funding, they also tend to charge higher interest rates and have less favorable terms.

3. Merchant cash advances

With a merchant cash advance, you receive a lump sum of money in exchange for a portion of your future revenue. Instead of paying monthly interest as you would with a standard loan, merchant cash advances are repaid in factor rates — a daily or weekly percentage of your sales.

Merchant cash advances can be an easy source of funding for new startups with limited time in business, or for companies with poor credit. MCA loans require less documentation compared to other types of funding, as creditors can rely on cash flow almost immediately in daily or weekly remittances. MCA loans also benefit seasonal businesses and companies with low or fluctuating annual revenue, as the amount repaid on the advance will not exceed the percentage of sales that was agreed upon. That being said, merchant cash advances can eat up your profits when sales are high — so if you’re getting paid well, so is your creditor.

How factor rates work

MCAs don’t charge a flat rate of monthly interest. Instead, you pay your creditor an agreed-upon percentage of your sales for that day or week until your total debt has been repaid. This form of financing can be beneficial if you need money up front, but could end up costing you far more than anticipated, since the rate of repayment isn’t fixed.

4. Unsecured line of credit

An unsecured business line of credit is a renewable source of funding that doesn’t require you to designate a specific loan amount or put up any collateral. You can borrow up to the ceiling on your line of credit limit, or only use a percentage of the line of credit as needed. As you pay off the amount you owe, it’s freed up for you to use again when you need it.

Assuming you qualify, a revolving line of unsecured credit can be a great fit for newer startups and companies with lower or limited credit history who need flexibility for various expenses. Just be sure you fully understand all of the rates and fees involved each time you utilize your line of credit, since the convenience comes at a cost. However, you may be able to renegotiate your rates once you’ve established trust and history with your lender.

How unsecured lines of credit differ from a term loan

Unsecured lines of credit allow you to access a revolving sum of funding as long as you’ve paid off what you borrowed the last time. In contrast, a term loan is a one-time financial transaction, where you’ll need to apply for and be approved for a new loan each time you need more money.

5. Business credit cards

Under the right circumstances, a business credit card can serve as a creative source of funding for your business. While credit cards don’t provide loans, per se, they do represent a line of credit that you can draw from at your discretion. Your credit limit is usually determined by the usual factors including your personal credit history, time in business and your annual revenue.

The interest rates on credit cards can be prohibitive, however. So if you can’t pay your balance in full each month, focus instead on term loans or other forms of financing with lower interest.

When a business credit card makes sense

A business credit card can be a financial asset for the right business owner with a strong personal history of fiscal responsibility who needs immediate access to funds and is confident about paying off the balance in full each month.

Self-secured startup business loan options

In addition to no-collateral business loans, there are several types of loans that are considered “self-secured.” While these options aren’t technically no-collateral business loans, self-secured loans means that the equipment or invoice serves as the collateral for the loan.

Equipment financing

Equipment financing and leasing can be a helpful option for new businesses that need significant cash investments up front, but can’t or don’t want to use other assets for collateral. If your startup needs heavy machinery, automotives or other high-dollar equipment items, a lender that offers equipment financing will help you purchase what you need with the understanding that they will be repossessed if you’re not able to make your loan payments. Since the equipment acts as collateral, this type of financing may be an option for business owners with bad credit.

Equipment leasing works on a similar premise, and can be helpful if you don’t have the means to consider interest rates on top of monthly payments. However, leases can have long-term ramifications, as you won’t own the equipment at the end of your payment term. If you want a rent-to-own option, consider a capital lease that will allow you to purchase the equipment at the end of your lease term. If, however, you work in an industry that requires constant technology upgrades, an operating lease will allow you to upgrade your equipment without owning the obsolete machines.

Invoice financing

Invoice financing (also known as accounts receivable financing) allows you to borrow money using money anticipated from outstanding client invoices to serve as the collateral. This source of funding is a good option for businesses that can’t qualify for traditional loans, or prefer to leverage income that’s already been earned instead of gambling on future business.

Invoice factoring is a type of invoice financing, where businesses sell outstanding invoices in exchange for a cash advance.

Alternatives to no-collateral startup business loans

The options listed above are a great start for business owners who don’t want to risk their assets at any cost. But if you are willing to put some collateral on the line or want to consider alternative funding options, the following alternatives could help you find funding at lower interest rates or with more flexible terms — or even identify some opportunities for grant money.

SBA microloans

The SBA microloan program offers eligible recipients up to $50,000 toward paying for expenses related to starting or expanding a new business. These funds are disbursed through nonprofit intermediary lenders in your area, who administer the loans and provide management and technical guidance as needed.

SBA microloans must be repaid within a maximum of six years, and most will require some form of collateral as well as a personal guarantee. Interest rates will vary based on the lender, but typically range between 8% to 13%. Unfortunately, though, microloan funds cannot be used to purchase real estate or pay off existing debts.


Crowdfunding platforms allow individuals to invest directly in your business. A successful fundraising campaign can help you bypass the need for a business loan altogether while simultaneously allowing you to gauge market interest from a broad audience.

Crowdfunded capital can be particularly beneficial for fledgling startups, especially ones with poor or thin credit that wouldn’t qualify for the amount of capital they need through a traditional loan. At the same time, crowdfunding could have some drawbacks as well. Crowdfunding can be time-intensive, and ensuring that you have a catchy campaign can distract you from your regular business operations. Furthermore, many crowdfunding platforms take a percentage of your total funds, so this option may only make sense if the final amount you earn from the campaign is still worth the time and money invested.


Grants for small businesses can be a particularly appealing source of capital, since they typically don’t require repayment. Government grants are often designated for certain types of businesses that focus on scientific or technological research or economic development. Some corporations and major companies such as AWS, Visa, Verizon and FedEx also offer private grants for small businesses in their industries, while other donors support underrepresented business owners, such as women, minorities or veterans.

However, grants aren’t just easy money for the taking. The appeal of free funding draws a large number of applicants, and you may find yourself spending a lot of time and effort researching your company’s eligibility for various grants, then competing for a relatively low dollar amount you may not even win.

Pros and cons of unsecured business loans

Here’s a quick summary of the benefits and drawbacks of unsecured loans:

Pros of unsecured loansCons of unsecured loans
  • Online lenders may have more lenient requirements to qualify for an unsecured loan
  • Lower financial risk because no collateral is required
  • May have a less extensive application process
  • May have higher interest rates than secured loans
  • May require a personal guarantee
  • Loan amounts may be lower than secured business loans

FAQs about startup business loans with no collateral

How can I get a loan to start a business without collateral?

Once you’ve decided which type of loan you want, work on making a strong impression on potential lenders. To qualify for a business loan, write a solid business plan, improve your personal and business credit scores and build a consistent track record of responsible financial management.

Can I get a startup business loan with bad credit and no collateral?

You may be able to qualify for a business loan with bad credit. However, since your financial situation poses more risk for lenders, you may find yourself with higher interest rates compared to businesses with strong credit and financial history. Your best options may include equipment financing, term loans from alternative lenders, secured loans and cosigned loans.

Do banks give business loans without collateral?

Most traditional banking institutions shy away from unsecured business loans. If you need money without putting up collateral, consider reaching out to alternative lenders, such as Fundbox.


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