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How Do You Get a Small Business Loan Without Collateral?

How Do You Get a Small Business Loan Without Collateral?; If you don't have collateral, is it still possible to get a small business loan? Learn more from Lantern by SoFi.
Susan Guillory

Susan Guillory

Updated August 9, 2021
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
When your small business takes out a loan, how does the lender know you’re going to pay it back? There are a number of ways. In certain situations, when you apply for small business loans, you’re required to provide what’s called collateral. This helps ensure that the bank or lender you’re working with sees you as less of a risk when it comes to paying back the loan. We’ll get into why that is, what situations might require you to provide collateral, and how to get a small business loan without collateral, if you qualify.

How Do Traditional Loans with Collateral Work?

No matter where you apply for a small business loan, the lender will look at how much risk you present. One indicator of that level of risk is your credit score. If your business or personal scores are low, this may indicate that you may not always have been financially responsible in the past. Maybe you’ve taken on more debt than you could afford. Maybe you’ve missed credit card bills. Maybe you have a bankruptcy on your record. All of these may concern a lender, since it is primarily focused on the likelihood that you will repay the loan.Because of that concern, some loans may be secured, meaning that they require collateral. Unsecured loans, by way of contrast, don’t require collateral. Collateral is typically an asset that you possess. When you put it up as collateral, you are agreeing that the lender can seize it if you are unable to pay your loan. The lender can then sell this asset to cover what you owe.Some examples of collateral that small businesses may have include the following.
  • Heavy machinery
  • Equipment
  • Real estate
So, let’s say that you’re applying for a $50,000 secured loan. You might put up your office space, if you own it, as collateral. If you weren’t able to pay the loan, your lender has the right to seize that property to cover the balance of what you owe.Collateral is not a commitment to take lightly. Putting up collateral like the real estate you’ve worked hard to get could jeopardize your business. That’s why you might want to learn how to get a small business loan without collateral when it’s possible so that you don’t put your business at risk.

Why Some Loans Require Collateral

Some lenders require collateral because they offer low interest rates. A collateralized loan presents less risk for the lender that it will not recuperate its investment in you, so it’s able to be competitive and get your business with a low interest rate.Other lenders require collateral because they cater to people who might not qualify for other financing by offering bad credit business loans. For businesses with bad credit, loans through a bank might not be an option, so they may feel the need to go with lenders that have more requirements in terms of collateral.There are also specific loan types that require collateral, such as invoice financing and equipment loans. Invoice financing (and the related invoice factoring) uses the value of the business’s unpaid invoices as collateral, and equipment loans use the equipment you’re purchasing as that asset.

Pros and Cons of Getting a Small Business Loan Without Collateral

Small business loans without collateral can have both benefits and drawbacks.
Let’s dig a little deeper into the details. 

Pros of Small Business Loans Without Collateral

These loans have a number of benefits. There’s more paperwork with a loan that requires collateral and the asset must be assessed and valued, so it can take longer to process. A small business loan without collateral would typically take less time to process and give you your money faster.Because you aren’t putting up your commercial real estate or equipment for the loan, there’s no risk that you will jeopardize your business by allowing those assets to be seized if you can’t pay the loan. (Of course, you will still have to figure out a way to pay back the loan.)And one of the best benefits of any small business loan is that you can build your credit by paying on time each month.

Cons of Small Business Loans Without Collateral

In researching how to get a small business loan without collateral, you’ll find that it isn’t all roses and sunshine. There are definitely some possible downsides.First, these loans tend to have higher interest rates, since you aren’t putting up collateral to lower the lender’s risk.Also, the value of the collateral you put up often determines how much you’re eligible for. So without that collateral, you may not be eligible to borrow as much.And while, no, you won’t have your assets seized, you are still liable for the loan. If you don’t pay it back, the lender could take you to court.

How Difficult Is It to Get a Small Business Loan Without Collateral?

When you want to get a small business loan without collateral, it’s important to first determine whether you would qualify for an unsecured loan. Researching small business loan terms before applying can be helpful.As already mentioned, getting a small business loan without collateral is often based on your risk level, though some loans simply require collateral from all applicants. Here, learn whether each type of business loan requires collateral or not.

SBA Loans

Small Business Administration (SBA) loans are the gold standard for business loans because they offer the lowest rates and may be easier to qualify for than bank loans.Some SBA loans require collateral. Others do not. It’s often left to the discretion of the SBA lender to determine whether collateral is required, based on all qualifications. However, with the 7(a) program, no collateral is required for loans up to $25,000. For 7(a) loans over $350,000, according to the SBA, the loan must be collateralized “to the maximum extent possible up to the loan amount.”

Long-Term Loans

Banks and credit unions may choose to require collateral for business loans at their discretion. Bank of America, for example, offers both secured and unsecured business loans and lines of credit. With its lines of credit, collateral may not be required for lines of $100,000 or less. PNC Bank also has both secured and unsecured small business loans available. Companies that offer online business loans may also offer both secured and unsecured loans. With the unsecured loans, however, you may need to provide a personal guarantee, which means that if your business can’t pay back the loan, you personally will have to.

Merchant Cash Advance

Another of your no-collateral business loan options is the merchant cash advance. It’s not technically a loan. Rather, you’re borrowing against future credit card sales. You pay back the advance by automatic withdrawals from your debit and credit card sales daily or weekly.

How to Qualify for Business Loans Without Collateral

If you don’t qualify for one of the no-collateral loan options we’ve discussed, it may be time to consider how to improve your creditworthiness, because that’s likely what’s keeping you from getting an unsecured loan.Start by checking what both your personal and business credit scores are. You may not have a business credit score if you haven’t been in business long or haven’t taken out credit under your business’s name. If that’s the case, you may want to learn how to build business credit so you’ll qualify for more types of financing.See where your personal score is and consider how you could work on it if you need to. Here are a few strategies to help rebuild your credit history.
  • Pay your credit cards and loan payments on time.
  • Reduce your debt to income ratio by paying down debt.
  • Keep credit accounts long-term.

The Takeaway

Getting a small business loan without collateral isn’t difficult, but it may take some legwork on your part, especially if you aren’t able to qualify for unsecured loans right now. But rest assured, there are options that don’t require collateral, though you may pay more in interest for them.See what your small business loans options are with Lantern by SoFi! Get rates from multiple lenders in our network by filling out one simple form.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website on credit ( tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.SOLC0621115

Frequently Asked Questions

What is collateral?
How do traditional secured loans work?
Can you get a small business loan without collateral?
How hard is it to get a loan without collateral?
What kinds of loans can you get without collateral?

About the Author

Susan Guillory

Susan Guillory

Susan Guillory is the president of Egg Marketing, a content marketing firm based in San Diego. She’s written several business books, and has been published on sites including Forbes, AllBusiness, and Cision. She enjoys writing about business and personal credit, financial strategies, loans, and credit cards. Follow her on Twitter @eggmarketing.
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