How to Get a Small Business Loan Without Collateral

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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 likely 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 you want a small business loan, but you need to keep collateral out of the equation. Based on this, what’s the next step?

Traditional Bank Loans May Not Be The Best Option

Before you apply for a traditional bank loan, be sure to review the process and your odds for approval. 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 do require a ready-to-go Plan B in the event that borrowers default on their loan.

There Are Other Small Business Loan Options

Since banks aren’t always a good option, you may look into purchase order financing or microloans. However, 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).

Consider a Working Capital Loan Through Mulligan Funding

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.

Learn More 

Call Mulligan Funding at 855-326-3564 to discuss your financing options today!

The information shared is intended to be used for informational purposes only and you should independently research and verify.

Note: Prior to January 23, 2020, Mulligan Funding operated solely as a direct lender, originating all of its own loans and Merchant Cash Advance contracts. From that date onwards, the majority of funding offered by Mulligan Funding will be by Loans originated by FinWise Bank, a Utah-chartered Bank, pursuant to a Loan Program conducted jointly by Mulligan Funding and FinWise Bank.