What if you need a loan for your business but have no collateral to offer as a security? Can you still get financing? The answer is generally yes.
Banks usually need some kind of guarantee in case you can’t pay back your loan. This generally comes in the form of tangible or intangible assets that the bank can sell to get its money back if you stop paying the loan. Collateral can be a physical asset-a vehicle, equipment or building-or other items with concrete value, such as accounts receivable, inventory, intellectual property or the business owner’s personal assets.
“A banker will have different risk tolerances and criteria for a loan that does not have tangible assets to offer as collateral,” says Jennifer Clark, BDC Business Centre Manager in Hamilton, Ontario. “It typically helps for a company to have proven cash flow, strong management and a solid business idea with market traction and a lot of potential.”
Here are various business loans that you may be able to obtain with no collateral, provided that your business is financially solid.
1. Working capital loans
Working capital or cash flow loans are generally intended to help businesses pay for shorter-term expenses, such as an anticipated cash flow shortfall or an investment in growth. Examples include:
- a leasehold improvement
- a website redesign
- a product enhancement
- marketing costs to increase revenues
- hiring new salespeople
- business acquisitions
Banks often require collateral for such a loan, typically in the form of accounts receivable, inventory or an entrepreneur’s own assets.