Buying and running a small business is almost as much a part of the American dream as owning a home, but how do you start that process when you don’t have the necessary resources or collateral?
This is the dilemma that many young entrepreneurs find themselves in around the country, but it doesn’t have to mean a full stop on chasing down those dreams.
Most lenders won’t bother with anyone that doesn’t have a proven track record, deep pockets, and plenty to offer as collateral. Still, other options exist for getting a business acquisition loan with no collateral.
What is a Business Acquisition Loan?
A business acquisition loan is any loan that helps the borrower start, acquire, or buy out partners in a new or existing business. In the process of buying a business, the person acquiring the company needs to have the cash to pay for the transaction, which is where these loans come into play.
SBA loans are one of the most common types of business acquisition loans, but those often involve an overwhelming amount of red tape. Another option is to find a private lender willing to take on the risk in exchange for a premium return on their investment.
In most cases, business acquisition loans will require some form of collateral, which is simply an asset pledged to the lender as security for the loan. This can typically be either business or personal assets, although lenders often prefer to use personal assets because it ensures a serious commitment from the borrower.
Unsecured versions of business acquisition loans are also an option. They are usually available in the form of venture capital funds or seller financing.
Requirements for Business Loans Without Collateral
If you need a business loan but do not have any collateral a lender is interested in or don’t want to risk losing an asset you pledged as collateral, an unsecured business loan is your best option. Since you are not putting collateral on the line, a lender will have several requirements that your business must meet to be considered. These requirements serve as protection and an incentive for the lender in place of an asset offered in collateral.
Most lenders have the following requirements for businesses that apply for a loan without collateral:
- Personal guarantee: A personal guarantee gives lenders the legal right to your personal assets should you fail to make payments in accordance with the initial agreement.
- UCC lien: Some loans come with terms that allow lenders to file a Uniform Commercial Code lien, giving them access to your business assets if the loan is unpaid.
- Elevated annual percentage rates: Loans without collateral will typically have a higher annual percentage rate (APR) than loans where collateral is provided. This is because unsecured loans are riskier for the lender.
For more information on how to secure a business acquisition loan with no collateral, contact our experts today!