Collateral Free Working Capital Loan or Finance - How to Secure It

Borrowing money comes with a repayment schedule and require a piece of collateral to use it. The type of collateral includes business equipment, inventory, or property. However, what if your business doesn’t have any collateral yet? The good news is online business lenders have a funding options where collateral isn’t required. Securing a working capital loan can be crucial to your business’ long-term success and you can get it collateral free.

Below are various business loans that you may be able to obtain without collateral.

Working Capital Loans

Working capital is the cash a company uses to pay for short-term operational assets like payroll, rent, utility bills, purchasing supplies, etc. Working capital loans are typically unsecured, meaning they are collateral free. Applying for an unsecured loan is easy and the borrower receives the funds quicker than if applying for a secured loan.  However, unsecured business loans carry high APRs than secured business loans.

Since banks often require some type of collateral for a loan, they consider other options when going collateral free. Bankers look at the company’s cash flow and how much they can afford to borrow based on forecasted cash flow or EBITDA. Without collateral, you may be required to sign a personal guarantee, which is a security agreement stating you promise to pay back the loan.

Market Expansion Loans

Similar to a working capital loan is a market expansion loan. It can also be obtained without collateral and is used by businesses that need the funds to grow. If your business is looking to launch a new product or open a new location, a market expansion loan is what you need to get.

The terms vary and are unique to the needs of the business. Some examples include flexible repayment, paying off the loan without penalty and a streamlined process to re-borrow money you’ve paid back on the loan.

Technology Financing

Technology loans offer flexible repayments for technology businesses or investments in hardware, software or IT planning. Also works similarly to working capital.

Growth and Transition Capital

This type of capital is a combination of conventional debt and equity financing.  Examples of this include mezzanine and quasi-equity financing.

Friends and Family Investors

You can also ask around your friends and family to lend you money without collateral, however they may ask for a share in your company. If you have poor credit or little industry experience this may be your best option as long as you are comfortable with the agreement.

Angel Investor

Another option to consider is an angel investor. They stake in your business in exchange for an investment of capital. The stake will be about 20-25% and you can get from $25,000 to $150,000.

Personal Loan

Personal line of credit and credit cards don’t require collateral. They do however have high interest rates and you will have a large debt if the balance is not paid on time every single month.

Business Grant

Applying for loans, using investors or using personal cash isn’t the only way to get the funds you need for your business. Grants are also a great source of funding. However, since the money doesn’t need to be paid back, it is harder to acquire than getting a loan. They also have more restrictions and requirements than the other types of business loans discussed above. A grant is also more time consuming to receive since there are hundreds of applications that need to be looked at and determine if they are the right applicants to fund.

Your chance of receiving a loan increases if you can put up collateral but as you can see there are many options to consider that don’t require collateral. From working capital to asking friends and family, there are options to do consider and do research on beforehand and see what is best for your business.