Getting a loan for your personal needs is not backbreaking. You just need to put in the loan application, and you will get money almost the same day without a hitch. In fact, your bad credit score will also not get in your way, but that thing is not so common with business loans. However, lenders are being flexible with business loans as well, and therefore, no guarantor business loans have been added to existing business loans on the market.
When you need money for your business, you will have to undergo a lot of formalities. A lender will not give the nod unless they check the business’s credit score, its revenues and ways to get money back in case you fail to pay off. If the amount is big, your lender will ask you to put collateral or arrange a guarantor.
Putting down collateral is not so easy as you will lose it when you fail to clear the debt, and when you arrange a guarantor, your default will ruin the credit points of the guarantor. Be that as it may, the guarantor pays off the full loan.
Most of the people will not agree to act like a guarantor, and therefore, it becomes pretty difficult to get a business loan. Well, if you need money for your business and cannot arrange a guarantor, you can try considering no guarantor business loans.
Consider options available that require no collateral and guarantor
Every time, lenders don’t need to seek some sort of security and guarantee when you have to take out a business loan. Whether a lender will require you to put down any form of security depends on the borrowing sum.
Of course, you will have to put down collateral or arrange a guarantor when the borrowing sum is large. No lender will take on very high risk while approving your application. Business loans can be secured and unsecured. It depends on the policy of a lender and what borrowing size they allow you to take on without any collateral and guarantee. While some lenders will put a cap on £25,000, others will not let you borrow more than £15,000 without any security and guarantee.
You will have to do a lot of research work to know about the lending criteria for unsecured business loans. Under no circumstances should you borrow more than the capped amount, as your loan application will be turned down straight away, and this will damage your credit score.
- Take pre-approval letters from lenders so you can compare interest rates and the borrowing sum. This helps you decide which one is more suitable for you.
- Borrow a smaller amount so your lender does not charge very high-interest rates. Maintain a good credit score so you can avail yourself of the privilege of lower credit scores.
While taking out unsecured business loans, it is a must to assess your financial situation. Your business must have alternatives to repay the debt in case it struggles to generate revenues.
Consider giving a personal guarantee
Undoubtedly, no guarantor business loans can be a bit challenging to qualify for when you need a larger sum. It is not always possible to borrow less than you need – after all, you need money for your business operations. To deal with this situation, you can give a personal guarantee.
A personal guarantee is a written promise to pay off the debt if the business borrowing money defaults. Here, you are solemnly promising that you will take on the responsibility of the debt payment instead of a third party, and therefore, it is called a personal guarantee.
If your business has multiple partners, they all can give the personal guarantee, but if any of them refuse, it does not mean you will not be held responsible for the entire settlement. Despite a shared personal guarantee, every partner or director will be responsible for the settlement of the whole debt if the other attempts to breach.
As you are giving the personal guarantee, you will be considered a guarantor. Therefore, you do not need a third-party guarantor. Giving a personal guarantee allows your lender to use your personal assets in case your business fails to settle the dues. Before signing the personal guarantee, you should carefully assess the drawbacks and consequences. If you actually do not mind using your assets for the debt settlement, you can go ahead.
Consider putting down collateral
Giving a personal guarantee is actually not favourable for everyone. If you do not want to take on the risk by providing a personal guarantee, you should try putting down collateral. If your business has a separate legal entity from you, you can use business assets as security, for instance, a piece of land. Lenders generally prefer an asset that is not depreciating in nature so they can cover the full amount of the loan.
If you are self-employed or your business does not have a separate legal entity, your personal assets will be used as collateral. Your house will generally be served as a purpose of collateral.
What are the types of unsecured loans?
Both a personal guarantee and collateral are risky. So, if you do not need a large amount of money for your business, consider applying for unsecured loans. Here are the types of these loans:
- Equipment financing – if you need money to buy equipment, you do not need to put down collateral, as the equipment you buy will be secured against the loan.
- Invoice financing – you can borrow against unpaid invoices. This is the way better and cheaper option than secured and guarantor business loans.
- A business line of credit – this will allow you to repeatedly borrow money against the available limit, which is ideal for funding cash flow gaps.
The final comment
You can qualify for no guarantor business loans if the borrowing sum is not too large and your credit score is good. However, if you need a larger sum, you will need to arrange collateral or guarantor.