Like hundreds of thousands of small business owners each year, you’re looking to increase your working capital through a loan. As the old saying goes “you have to spend money to make money”, and leveraging debt is a standard, time-honored strategy. Heck, even shrewd kids setting up a lemonade stand have been known to negotiate an advance on their allowance in return for the principal and a piece of the action.
However, like many of your fellow small business loan applicants, you don’t want to secure your loan with collateral. There are several reasons why you might take this position, such as:
- You don’t have enough business or personal assets.
- You don’t want to risk your business or personal assets.
- You’re aware that banks are notorious for under-valuing collateral, and you wisely don’t want to play a game that you can’t possibly win.
Whatever your reasons and rationale, the bottom line is that your want a small business loan, but you need to keep collateral out of the equation. Based on this, what’s the next step?
Don’t Bother with Banks
The simplest, best and most time and stress-saving advice we can give you is: don’t bother with banks. All bank loans (small business and otherwise) require collateral, and there’s no way around it. While they don’t necessarily want to seize assets – banks aren’t in the asset repossession business – they absolutely demand a ready-to-go Plan B in the event that borrowers default on their loan.
Other Small Business Loan Options
Since banks aren’t an option, you may look into purchase order financing or microloans. But frankly, both of these options have major drawbacks for small business borrowers.
With purchase order financing, you’re basically selling an invoice to a lender in return for about 80% of the value. On the surface this may look like an OK deal, but the risk is that you can start depending on purchase order loans to fill orders. In other words, you won’t have any working capital for expanding your business and growing your profit capacity.
And if your customer takes longer to pay their invoice, they’ll be subject to some pretty aggressive collection tactics by your lender, who has absolutely no relationship with your customer and doesn’t care if they’re happy or not. They just want to get paid. You could end up losing the customer – and the consequences could be severe.
As for microloans, they’re trendy and interesting, but they’re hardly the business loan Nirvana that many small businesses are led to believe. Competition for funds is ferocious, and the vast majority of businesses don’t reach their funding goal. Indeed, if you poke into any crowdfunding-type website, you’ll see that there are a few top performers that get featured -- but most businesses don’t even generate 15% of their goal (and most of that 15% is from friends and family).
Working Capital Loans
In our experience, the best way to get a small business loan without securing it with collateral is through a working capital loan.
Unlike purchase order financing, you’ll access 100% of your loan proceeds from day one (vs. 80% or possibly less). Plus, since the loan is paid back in small fixed amounts each day, you’ll have the freedom – and time – to make investments that grow your business and increase your profit capacity.
And unlike microloans, once you’re approved – and approval rates are high – you don’t have to wait and worry to see if you’ll reach your funding goal. You’ll receive 100% of the funds within days. You’ll also have a personal relationship with your lender, and can discuss options and possibilities that align with your changing needs. For example, you can pay your loan back early if you wish and save interest, or you can apply for a second working capital loan while your first is still active.
To learn more about the benefits and advantages of a working capital loan, contact the Mulligan Funding team today. Your consultation with us is free, and we’ll clearly answer your questions. Our goal isn’t to “sell you a loan”. It’s to provide you with honest information, so that you can decide what’s best for you and your small business.
Interested in learning more about the differences between working capital loans and conventional business loans? Download our FREE eBook now: