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How to Get Business Loans Without Collateral

Anne Miller

Anne Miller

Senior Author

Anne Miller

Senior Author

Documents to be Submitted when Applying for a Business Loan without Collateral:

  • 3 passport – size photographs
  • Proof of identity– passport/social security card/driving license
  • Proof of residence – passport/telephone bill/ post-paid mobile bill/ bank statement/rental agreement
  • Proof of age – passport and/or driver’s license
  • Income tax returns for the last three years
  • Bank statements for the last six months
  • Board resolution and audited financials

It goes without saying that often the most appropriate solution to obtain financing to fund a start-up or the expansion of an existing business is to press the button for external borrowing.

What You Need to Know About Business Loans Without Collateral

These loans not only cover costs of working capital but also help in purchasing new machinery and equipment to enhance production, acquire real estate, and hire the best talent available as also in buying raw materials, which is the lifeblood of production. 

Types of Business Loans

All financial institutions generally offer two types of loans: Secured and unsecured. The first type requires some sort of collateral to be submitted as a guarantee that the loan will be repaid in due course of time. In other words, it’s a security that the lender wants to ensure that in case the borrower defaults, he has something in hand that can be sold off to recover the cash due to him. Usually business assets like plant and machinery and/or commercial real estate is kept as collateral with a lender.

An unsecured loan comes without pledging any such collateral. As no security is required, fulfilling the minimum credit and income requirements becomes a must. All lenders insist that the business should come with a minimum turnover and its promoter has an acceptable credit score.

Your decision to take a secured or unsecured loan depends largely on the nature of your business. In certain cases, you may just not possess any worthy collateral that may be pledged against your loan.

There are 3 components to an unsecured loan: First, no collateral or security is required. Thus, these loans are ideal for either service-oriented businesses or those which are without substantial assets. Secondly, these loan amounts are usually small and won’t cover too many expenses or investments. Moreover, the repayment period is between 1 to 5 years. Finally, these loans are given strictly for business purposes and never on a personal basis.

Most unsecured loans are given by the private banks and non-banking financial institutions (NBFCs). In India for instance, any business that records an annual turnover of Rs 50 – 75 lakhs, has been in operations for the last three years, and comes with adequate profitability, is eligible for an unsecured loan. This is different in Thailand, China, Australia, Italy, and so on. Though in Cuba there is no private land ownership since that country is ran by totally by the government which is why it is a failed country but this is another topic.

Something to keep in mind as you ask lenders how to get a business loan is that you the borrower has to submit your income tax returns spanning the last 3 years as also all balance sheets and bank statements for the same period. These are disbursed quickly by way of faster approvals and are repayable over a shorter term. Thus, usually start-ups, which are yet to develop their asset base for such loans, the advantages and disadvantages of which are as follows:

Unsecured Loans: Advantages

The greatest benefit of unsecured loans is no security is required and the borrower doesn’t need to pledge expensive stuff like vehicles, property or for that matter, any saleable personal asset. It’s basically a decent credit score that gets him the loan and he doesn’t stand to lose any of his assets even if he defaults on his payments.

Legally, the lender has no right to seize and sell off any of the borrower’s assets unless he obtains a proper court order to that effect. Moreover, unsecured loans are also more easily available albeit at a higher interest rate. However, most lenders give out such loans up to a fixed borrowing limit only.

Unsecured Loans: Disadvantages

On the flip side, the main drawback of an unsecured loan is its almost sky-high interest rate. The borrower is compelled to pay much higher amounts on the loan when compared with a secured one. This is mainly because when the borrower defaults in making payments, the lender is left with no collateral to make up for the loss he incurs. Moreover, unsecured loans are more difficult to get approved, especially when the business has a weak credit score.

How To Make the Correct Choice

A decision to open a window for an unsecured loan depends solely on a business’s existing assets. If such assets are inadequate to be put up as collateral, then opting for an unsecured loan makes sense even though you pay a higher interest rate. These are also readily available online and getting them is faster and easier. In order to be eligible for an unsecured loan, the prospective buyer must be eligible in terms of the following:

  • The applicant’s age should be between 21 and 60 years
  • The business should be operational for at least three years
  • The business should have filed income tax returns for the last three years
  • The business’s owner/owners should be staying in the city where the business is being conducted for at least one year
  • All business financials including overall turnover and profit after taxes should be available
  • The business should possess all relevant documents that adhere to state laws

However, it should always be borne in mind that defaulting on an unsecured loan will inevitably have a negative impact on your business's credit rating. So make your repayments on time, in order to ensure that your decision to borrow is indeed a wise one. So whether its for starting a new office or purchasing small equipment, these will certainly come in handy and help you meet your goals. Having a business loan calculator can also help. 


Whether you are starting a new business, taking over an existing one, or making plans to grow your business, it’s likely that you will need to borrow money.  The good news is that plenty of banks and lenders make all kinds of loans available for small businesses!  It can be confusing, with so many different options and sources to evaluate.

If you’re like most small business owners, you want to spend your time managing your business, not filling out loan application forms or trying to figure out financing contracts.  Before you start the borrowing process, it’s a good idea to make sure you understand the key features of the various products and services available.  Here are common questions about borrowing for your business to help you get started.

Small Business Loans

Here are general questions about borrowing for your business.

Can I get a business loan with no money?
Yes. Ask the lender if they can deduct any fees or costs from the amount of your loan. You will still be liable for these costs, but you do not have to pay them upfront out of your own pocket.
Do you need money down for a business loan?
No. There are lots of business loan options that don’t require a down payment or any out of pocket expenses. You can use a loan evaluation or comparison tool to filter out any loans that require a down payment.
How much is a small business loan?
Small business loans can be as small as $5,000 and range into the millions. Typical loans are in the $50,000-$500,000 range. Banks will typically have a larger minimum loan, measured as a percentage of your business’ total sales revenue.
How do you go about getting a business loan?
There are lots of different providers out there. Make sure you know how much you want to borrow and for what and be prepared to submit a credit application and information about your business including bank statements and tax returns.
Can I get a business loan with bad personal credit?

Yes. Many lenders offer programs for borrowers with bad personal credit, especially if your business is generating enough revenue to make regular loan payments. Look into business loans bad credit options.

How can I finance business with no money?
Many providers offer credit terms for equipment or inventory or will give you a trial period to get started with their services before you must start paying. Pay close attention to the terms of these trial periods, so you don’t wind up with any surprise obligations.
What are the reasons why the banks might not be willing to lend to individual borrowers?
Banks typically have strict credit standards, and if you do not meet their requirements, they may not lend to you. Also, banks may not lend to certain types of businesses. Not all banks lend in all states, so you may have a better result with a local bank versus a national one.
What is an informal source of credit?
An informal source is typically someone you know personally and are borrowing from without any formal credit application or loan paperwork.


Collateral is a catch-all term for anything that the lender can use to back up your loan. If you don’t pay your loan, the lender can take the collateral and use it to reduce their losses.

What is a loan without collateral?

Also called an “unsecured” or “signature” loan, this is a loan where there is no guarantee or other security for the lender to ensure they are repaid.

How can I get a business loan without collateral?

Find a provider that does not require collateral for your application. Typically, these are non-bank lenders that offer shorter-term, higher rate loans.

Do you need collateral to get a small business loan?

No. Many lenders will provide credit without collateral. You may have to offer a personal guarantee, so the lender has some surety that they will be repaid.

How much collateral do I need for a business loan?

Most lenders want the amount of collateral to equal the amount of the loan principal.  Collateral will need an appraised value, which can be an additional expense or step in the loan process.

Can you get a personal loan without collateral?

Yes. Many lenders will provide personal loans without collateral if your credit score is at least average.

Can I get a personal loan with land as collateral?

Definitely! Property is always a good asset to use as collateral. However, the lender will need to appraise its value and understand any other borrowing related to the land, such as a mortgage.

What is collateral security for a bank loan?

Collateral security is merely the value of the collateral you have pledged to the bank. It is typically valued at or above the amount of the loan.

Do banks do collateral loans?

Absolutely. Banks will almost always ask for collateral as part of their lending process.  Many banks work with an outside appraiser who will assess the collateral and put a dollar value on it. You can even apply for a small business loan online.

What is an example of collateral?

Real estate, physical equipment, inventory, and accounts receivable are typical sources of collateral.

Why do lenders ask for collateral while lending?

It reduces their losses if you do not repay the loan. In the event of default, they will seize the collateral and use its value to pay down what is owed.

What can be used as collateral for a business loan?

Almost anything with tangible value to the lender can be used as collateral, including real estate, equipment, inventory, or accounts receivable.

Where to get a business loan without collateral?

Many providers do not require collateral for a business loan. They may charge higher rates, and typically have shorter loan periods than loans with collateral.

Do small business loans require collateral?

No. Some providers will require a personal guarantee if there is no collateral available.  If you have collateral, you can generally get better terms for your loan.

Can I use my business as collateral for a loan?

Yes. You will need to share information about the value of your business, so the lender can evaluate it.  This typically includes a P&L statement and tax returns.

How do I buy a business with no collateral?

Often you can use the company you are buying as collateral for the loan itself. Check with your lender on what they can offer.

Are small business loans secured with collateral?

Yes, most small business loans are secured with collateral, in an amount equal to or greater than the amount of the loan.

What does collateral in business mean?

Collateral is an asset with value that the lender can use to secure a loan they are making or credit they are extending. If the borrower does not repay the loan, the lender can seize the collateral to reduce their losses.

How do businesses use collateral assignment?

In this case, the company assigns the rights to the collateral to the lender (or another third party). The business does not have rights to the insurance until the loan is satisfied.

Can I use the business I am purchasing as collateral?

Yes, most lenders will allow you to pledge the business you are buying as collateral for the loan.

Can I use business assets as collateral for a loan?

Definitely, although you will need to show clear title to them, and subject them to appraisal.

How do I remove my home as collateral for a business loan?

You need to make a formal request to your lender to remove their claim on your house, and then ensure it is filed appropriately with the county land records office.

Can any business do a collateral loan?

Yes, if the business has collateral to pledge to the lender, it can be used for a loan.

Can you use 401k as collateral for a business loan?

Usually, a lender will consider a portion of the balance of a 401(k) as collateral.

How to get a startup business loan without collateral?

Many lenders have programs for start up business loans bad credit no collateral. Be prepared to show your business plan and how you will generate enough revenue to cover the loan payments.

SBA Loans

SBA Loans are backed by the Small Business Administration, a federal agency that helps individuals start and grow small businesses. SBA loans are partially supported by the federal government which can make them more accessible and cheaper to obtain. 

Do SBA loans require collateral?

No, although it is preferred. The lack of collateral is not a reason to decline an SBA loan.  The purpose of your loan also matters — if you are using your SBA loan to buy property, the property itself becomes collateral.

Do SBA loans require down payment?

Yes, between 10-20% depending on the size of the loan and the borrowers’ credit score. Look at current SBA loan rates to see how they compare to other loans.

Anne Miller

Anne is a Senior Author for SBL. She began her career as an independent consultant for local businesses after graduating with a BA in Management. Since that time, she’s expanded to writing as well as consulting to spread helpful knowledge to small business owners across the country.


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