Not every business has real estate, equipment, or assets to pledge against a loan. The good news: revenue-based financing programs evaluate your business's cash flow, not your collateral.
Traditional banks require collateral as a form of security — if you can't repay the loan, the bank can seize and sell the collateral to recover its losses. For small businesses that don't own real estate or significant assets, this requirement is a major barrier to accessing conventional business loans.
The SBA partially solves this problem for its programs, requiring lenders not to decline a loan solely due to insufficient collateral when the business otherwise qualifies. But even SBA loans require lenders to take whatever collateral is available.
Revenue-based financing is the most accessible no-collateral option for most small businesses. Instead of pledging assets, your business's monthly revenue serves as the basis for approval. Lenders evaluate your bank deposit history and make an advance against your future revenue. No physical assets required.
Some lenders offer unsecured business lines of credit based on business revenue and credit history. These typically require stronger credit profiles than revenue-based advances and offer a revolving credit structure — draw what you need, pay it back, draw again.
SBA guidelines prevent lenders from declining solely due to insufficient collateral. If your business qualifies on all other criteria, a lack of collateral may not disqualify you. However, lenders are still required to take available collateral when it exists.
Without collateral to fall back on, lenders for unsecured programs evaluate credit score and credit history, monthly business revenue and consistency of deposits, time in business as an indicator of stability, existing debt obligations and whether you can service additional payments, and for some programs, your industry and business type.
No-collateral financing is more expensive than secured financing. The lender is taking on more risk without an asset to backstop the loan, and that risk is priced into the cost of capital. For businesses that need capital quickly and don't have collateral, the higher cost is the price of access. For businesses that can qualify for secured programs, the lower cost is worth pursuing.
No-collateral financing is well-suited for service businesses with strong revenue but few physical assets, businesses that need capital faster than secured lending allows, businesses that don't want to risk personal or business assets, and businesses in their growth phase that are asset-light.
Access funding based on your business performance, not your assets.