# No Collateral, No Problem: Here is What You Need to Know to Secure a Business Loan Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2021-08-18 Category: FINANCE Category URL: https://financedigest.com/category/finance Meta Title: Alternative Business Finance Solutions for Small Businesses Meta Description: Discover alternative financing options for small businesses in need of funding without the hassle of providing collateral to traditional banks. URL: https://financedigest.com/no-collateral-no-problem-here-is-what-you-need-to-know-to-secure-a-business-loanhtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/graphicstock-man-counting-using-calculator-and-stress-in-problem-with-expensesrdrwhw-sbi-301990131-1736838007676-compressed.jpg) ![](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/scott-donnelly-450x600-1736838007616-compressed.jpg) _By **Scott Donnelly,** Director of Board at CapitalBox_ In the current climate, many businesses, especially small businesses, have found themselves in need of short-term loans to cover expenses such as higher-tax bills, maintenance, buying crucial equipment. At the same time, businesses that are flourishing in the short-term may now be focused on medium to long term investment such as remodeling, expanding, investing in inventorying, or hiring new employees. To [secure a loan](https://www.financedigest.com/buddy-loans-secures-full-fca-approval-to-offer-guarantor-loans.html "Buddy Loans secures full FCA approval to offer guarantor loans"), there are a few requirements to tick off the checklist. For those businesses that are just starting off, going to a [bank might not be a viable option](https://www.financedigest.com/producers-distributors-aggregators-mobey-forum-charts-strategic-options-for-banks-in-the-post-psd2-age.html "Producers, Distributors, Aggregators: Mobey Forum Charts Strategic Options for Banks in the Post-PSD2 Age"). Even if you meet the minimum requirements for getting a loan, you might be required to provide collateral for the bank [business loan](https://www.financedigest.com/types-of-business-loans.html "Types of business loans"). Collateral or a [secured loan is to eliminate the lender’s risk](https://www.financedigest.com/combating-the-security-risk-of-remote-working.html "Combating the security risk of remote working "). This is the reason so many banks prefer to only offer this type of loan, especially to young [small businesses](https://www.financedigest.com/small-businesses-and-scams-what-you-need-to-know.html "Small businesses and scams: What you need to know") that are innately risky. Most [banks require some liquid assets](https://www.financedigest.com/asset-managers-on-alert-after-whatsapp-crackdown-on-banks.html "Asset managers on alert after ‘WhatsApp’ crackdown on banks"). The easier it is to turn the collateral into cash the higher the chance of getting [business financing](https://www.financedigest.com/6-ways-to-spring-clean-your-business-finances.html "6 ways to Spring clean your business finances") from a bank. Some of the most used collateral in banking these days are commercial [real estate](https://www.financedigest.com/the-north-heads-south-to-mipim-en-masse-to-corner-new-real-estate-business-opportunities.html "The North heads South to MIPIM en masse to corner new real estate business opportunities"), business equipment, inventory, or supplies. Most people think that a bank loan can be the cheapest available option for getting a [business](https://www.financedigest.com/1-in-3-uk-businesses-looking-for-finance-are-finding-it-harder-to-get-a-loan.html "1 in 3 UK businesses looking for finance are finding it harder to get a loan") loan, but to qualify for a business loan can be quite difficult. The process of getting a clear answer can even take months. The collateral needed for this type of loan may also need to be audited, which only adds additional [time and stress to your small business](https://www.financedigest.com/cfos-its-time-to-own-the-business-model.html "CFOs: It’s time to own the business model"). **Bridge the [finance gap with an alternative](https://www.financedigest.com/demystifying-alternative-finance.html "DEMYSTIFYING ALTERNATIVE FINANCE") solution** Although business loans obtained by providing collateral are [considered](https://www.financedigest.com/7-factors-to-consider-before-your-business-moves-to-a-subscription-model.html "7 Factors to Consider Before Your Business Moves to a Subscription Model") to have better conditions than unsecured business loans – it is still possible to find loans with similar terms. This is where alternative [financing comes](https://www.financedigest.com/professionals-in-the-finance-sector-say-they-want-their-personal-data-edited-or-deleted-when-gdpr-comes-in.html "Professionals in the finance sector say they want their personal data edited or deleted when GDPR comes in") in. Alternative finance at a time when your [business needs](https://www.financedigest.com/setting-up-a-business-in-the-uk-heres-what-you-need-to-know.html "Setting up a business in the UK? Here’s what you need to know.") it the most can be the difference between sinking and soaring. This is the main [reason small](https://www.financedigest.com/5-reasons-why-you-need-to-step-into-your-ceo-role-as-a-small-business-owner.html "5 Reasons why you need to step into your CEO role as a small business owner") businessowners are increasingly trying out alternatives, like silent factoring or business loans provided by private lenders or fintech. Besides the straightforward application process, [fast answer time and fast payment](https://www.financedigest.com/bnp-paribas-offers-nexo-standards-across-14-countries-to-enable-fast-interoperable-and-borderless-card-payment-acceptance-for-european-merchants.html "BNP Paribas Offers nexo standards Across 14 Countries to Enable Fast, Interoperable and Borderless Card Payment Acceptance for European Merchants") time, some of these alternatives rely mostly on personal guarantee. Meaning that if you take out a loan with a personal guarantee instead of a secured loan, you will be making a guarantee that you, as an individual, will pay the debt should the [business default on the loan](https://www.financedigest.com/the-definitive-guide-on-how-to-get-a-bad-credit-business-loan.html "The Definitive Guide on How to Get a Bad Credit Business Loan"). **Understand how** [personal guarantee works](https://www.financedigest.com/are-you-a-trailblazer-collaborator-or-traditionalist-reveal-your-work-personality-and-how-to-perform-at-your-peak.html "Are You A ‘Trailblazer’, ‘Collaborator’ Or ‘Traditionalist’? Reveal Your Work Personality And How To Perform At Your Peak") It is [important to understand that a personal guarantee does not require any fixed assets](https://www.financedigest.com/the-importance-of-asset-valuation.html "The Importance of Asset Valuation") — like your apartment or family valuables. You typically [need to prove you have some sort of funds](https://www.financedigest.com/need-additional-funding-but-not-sure-how-to-go-about-it.html "Need additional funding but not sure how to go about it?") to show you’ll be able to pay off the loan, in case of default. No one takes out a business loan thinking they will not repay it, but the reality is that not all businesses succeed and not all debt gets paid back. Therefore, most [private lenders](https://www.financedigest.com/mistakes-to-avoid-while-choosing-a-private-money-lender.html "Mistakes To Avoid While Choosing a Private Money Lender") that provide unsecured business loans require personal guarantees. Another aspect to consider is the need to meet certain [credit score](https://www.financedigest.com/12-things-that-dont-hurt-your-credit-score.html "12 Things That Don’t Hurt Your Credit Score") criteria to get approved for a personal guarantee. Even if it isn’t much, some private lenders and fintech [companies might ask for a list of all your assets and liabilities during the application process](https://www.financedigest.com/companies-that-dont-upgrade-their-financial-processes-this-year-will-get-left-behind.html "Companies that don’t upgrade their financial processes this year will get left behind"). **Is your business ready for financing?** One rule to keep in mind when taking out a loan: always have a plan for paying back the loan to fund your [small business](https://www.financedigest.com/10-dirty-tricks-for-small-businesses-to-watch-out-for-when-negotiating.html "10 dirty tricks for Small Businesses to watch out for when negotiating"). Ask yourself why you want to take out that loan? When looking for financing for your business you should be looking at what’s more [important](https://www.financedigest.com/the-importance-of-property-care-looking-after-your-business.html "The Importance of Property Care: Looking After Your Business") for you and your business at that stage. The cost of the loan will always be a factor but onboarding a new client, purchasing equipment that will help you [grow your business](https://www.financedigest.com/5-considerations-when-trying-to-grow-your-business-during-a-pandemic.html "5 Considerations When Trying to Grow Your Business During a Pandemic"), investing in marketing or getting new hires might be a smarter investment for your business, then waiting to get the lowest interest rate on the market. It’s your choice. Finally, before agreeing to any sort of loan, remember to look at your business and your finances objectively – [understand the risks](https://www.financedigest.com/how-data-visualisation-is-helping-the-insurance-sector-understand-environmental-risks.html "How data visualisation is helping the insurance sector understand environmental risks") and be cautious. But if you are confident in your business then taking out a loan could be a great step to [secure its future](https://www.financedigest.com/the-future-of-cyber-security.html "THE FUTURE OF CYBER SECURITY"). --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---