Alternatives to an Unsecured Business Loan for Startups
Some loans are considered unsecured business loans because they don’t require you to put up physical collateral, like real estate, but the loan is backed by the asset you’re borrowing to purchase. These loans are available to businesses that are new, but not still in the ideation stage. You should have real business assets with some revenue or customer invoices before considering these options.
Alternatives to Unsecured Startup Business Loans
Equipment financing helps you purchase large pieces of equipment for your business by using the equipment itself as collateral. While this technically isn’t an unsecured loan, you don’t have to personally put up any collateral in order to get approved. If you default, you’ll only lose the equipment you purchased with the money.
Equipment financing can be structured as an equipment loan, where you own the equipment at the end of your term, or an equipment lease loan that lets you use the equipment for your loan period. Both use your equipment as collateral.
POS financing is offered by the POS provider that processes your credit and debit card transactions. When you’re processing a certain level of daily receipts, which varies by provider, they will typically offer financing to you. POS financing providers typically lend less than $100,000, and the financing is capped at a certain percentage of the number of receipts you process annually.
Repayment terms are typically daily and automatically deducted from your POS revenue by your provider. Learn more by reading our article on Get funding
Angel & Venture Capital
Angel investors and venture capitalists are individuals or entities that invest in startups in return for a percentage stake in that company. This type of financing is called “equity financing,” and technically isn’t a loan at all. Instead, you effectively sell a portion of your company to an outside investor in return for capital and oftentimes strategic guidance.
Angel investors and venture capitalists are really only a viable option for startups that exist to scale quickly and exit for a large sum of money. For most of us, this isn’t a viable option. It is interesting, however, since it requires no collateral or even a personal guarantee, and is instead more similar to an asset sale. For more information, check out our article on the best startup business loans.
Unsecured Startup Business Loans Frequently Asked Questions (FAQs)
We have done our best to cover unsecured startup business loans in this article. However, like with any other form of financing, there are always some questions that are asked more frequently than others. If we haven’t answered your question in our article or in the FAQs below, you can ask us a question in our Fit Small Business Website.
Some of the most frequently asked questions about unsecured startup business loans are:
It will be difficult to get qualified for an unsecured business loan if you have poor credit. Most low credit, small business loans that have low requirements base funding decisions on business revenue and performance. Fortunately, founders can draw on personal retirement savings with a rollover for business startups.
Are there other financing alternatives for startups?
As an alternative to SBA loans, startups can raise some money from friends and family. For businesses with steady growth, the fastest way to get financing is with an online business lender. If your business is scaling very quickly, you may even consider startup funding like venture capital or angel investors.
Are there any nonprofit lenders for startups?
Some entrepreneurs may qualify for loans under $50,000, commonly known as microloans. This is often done through larger sponsored programs like the SBA Microloan program. Qualifications will vary amongst lenders, and may require you to fulfill certain job creation or hardship alleviation goals as part of your business plan.
While it can be difficult to find an unsecured business loan for your startup, there are options available to you. The best one for you will depend on your creditworthiness, how much funding you need, and how much you have to put down.
We understand that unsecured business loans may or may not be right for you, which is why we recommend talking to a startup loan expert. They specialize in getting startups funded and can help you obtain unsecured business loans for your business, as well as a rollover for business startups, a penalty-free and tax-free way of using retirement savings to fund a startup business. See if you qualify for funding here