The team at Fundbox, an AI-driven credit platform for B2B commerce, recently published a blog post that looks into the possibility of getting a business loan without providing collateral.
Fundbox’s blog post notes that when we are planning to expand our business, many of us are eager to find out how to acquire small business loans without putting up collateral. As noted in a blog by Fundbox, there are secured and unsecured loans that we may obtain.
The main difference between secured and unsecured loans is that the former needs an asset to serve as security. Basically, it’s a collateral business loan that requires borrowers to “put something up in exchange for financing (e.g., commercial real estate or a company car),” the blog post from the Fundbox team explained.
It also mentioned:
“An unsecured loan is a no-collateral loan that has no such requirement. While there are some business loans available that require no collateral, they are not as easy to find nor as readily available as a standard secured loan.”
Fundbox explains that most of us might be familiar with the general idea of a secured loan, because we may be regularly using this type of lending as consumers.
A mortgage, for instance, is “the best-known secured loan, with the collateral being your home,” so if we fail to make our mortgage payments, then eventually, the lender will proceed to repossess the property, Fundbox noted.
They also mentioned that “the whole point of setting up a secured loan is to reduce the lender’s risk,” which is why so many lenders “prefer to only offer this type of loan, especially to new startups that are inherently riskier,” the Fundbox team added.
They pointed out that if you’re seeking a no-collateral loan, there are only limited options available. And, even in those cases, many lenders “still reduce their risk through other requirements that give them leverage in case of default,” Fundbox’s blog post noted.
As mentioned in Fundbox’s blog, these requirements may include:
- A personal guarantee: “If you take out a loan with a personal guarantee instead of a specific item of collateral, you will be making a guarantee that you, as an individual, will pay the debt should your company default on the loan.”
- A blanket UCC lien: “This is another option when lenders do not ask for a particular item of collateral. A blanket UCC lien may be placed on the business. That means should it default on its payments, the lender can then pursue the company’s assets as compensation for the remaining unpaid sum.”
Although none of these options are “something to discount from the equation completely, it is important to have a full understanding of what they entail for you and your company before signing on the dotted line,” the Fundox team added.
The company further noted that these days, there are many private lenders that could be willing to provide loans without collateral, “as long as the business owner offers a personal guarantee.”
This may be in the “form of a cosigner, an asset or a commodity,” Fundbox’s blog noted, while adding that “although, strictly speaking, this is not quite an unsecured loan, there are many more options for the commodities or assets that you can use.”
Fundbox further noted:
“Innovations in technology have contributed to the emergence of new fintech firms, able to provide access to financing quickly and with relatively little paperwork. With Fundbox, you can apply for financing online without any specific collateral, and expect a credit decision in just minutes (3 minutes, actually, based on the median decision time for Fundbox customers). All Fundbox customers are subject to UCC-1 blanket liens.”
(Note: for more Insights from Fundbox, check here.)
In an interview with Crowdfund Insider last year, company CEO Prashant Fuloria had noted:
“Fundbox is a financial services platform powering the small business economy with innovative credit and payment solutions. We work with a broad spectrum of industries and segments, providing small businesses with access to working capital and other tools designed to give them greater financial agility and peace of mind.”
“We’re focused on serving small businesses that are on the smaller end of SMB scale. So businesses ranging from a sole proprietor all the way to businesses with up to a hundred employees. Our customers’ annual revenues range all the way from $50,000 on the low end to $10 million on the high end, and the average is roughly $750,000. At Fundbox, we’re focused on re-imagining credit and payments for small businesses using data and machine learning.”
“One of the biggest concerns for small business owners is maintaining steady control over their cash flow. And while cash flow management is the core pain point, lack of cash flow control bleeds over into other areas of concern such as the ability to make payroll, buy inventory, pay taxes, accumulate savings, and more. We want to continue building innovative products that put our small business customers in a position of strength by making them more financially agile and resilient. While we cannot provide details at this stage, we are indeed working on new products that address financial challenges small businesses face on a daily basis.”