Can You Get a Business Loan Without Collateral?
Yes, you can obtain a business loan without collateral. But secured loans that require collateral often have better interest rates and loan terms.
How Much Collateral Is Needed for an SBA Loan?
You won’t need to provide any collateral for an SBA loan under $25,000. If you are seeking an SBA loan for more than $350,000, lenders will require a maximum amount of collateral.
Is a Personal Guarantee the Same as Collateral?
Unlike collateral, a personal guarantee is a signed contract in which the business owner agrees to repay the loan if the business defaults on it. That’s different than collateral, which is an asset that your business uses as security for a business loan.
Does Collateral Improve My Approval Odds?
Collateral lowers the risk for lenders. With that, the appropriate collateral may improve your chances you obtaining a loan.
Is a Lien the Same as Collateral?
If you default on a loan, a lien allows the lender to take you to court for repayment. Most lenders prefer a blanket lien, which encompasses multiple assets owned by your business. In the event of a loan default, the lender has the right to sell multiple assets to recoup their losses.
What Kind of Collateral is Needed for a Business Loan?

If you need to provide collateral for a business loan, there are several types.

     Real estate: Property owned by your business is a preferred form of collateral.

     Business equipment: Depending on the value of your equipment, some lenders will accept this as collateral. Machinery, vehicles, and more can qualify as equipment.

     Inventory: Lenders usually prefer another form of collateral. But some will accept this relatively illiquid form of collateral.

     Cash: Cash is the preferred type of collateral due to its high liquidity.

     Investments: Different types of investments can qualify as collateral. But the liquidity and volatility will impact your offered LTV.

     Personal assets: Many lenders will allow you to pledge personal assets for business loans.

What Types of Collateral Don’t Lenders Accept?
In general, lenders won’t accept funds in a retirement account as collateral. So, funds stashed in your IRA or 401(k) won’t qualify.
Can I Get a Secured Business Loan for My Startup?
If your startup has assets of any kind, then a secured business loan might be an option. Reach out to lenders to see if what assets you have will get you the secured funding solutions to need.
I Backed My Loan with Collateral. Why Was My Application Rejected?

Even if you have collateral to back up your loan, there are other reasons why a lender may reject your application.

     Inconsistent cash flow: Lenders want to see a consistent cash flow to ensure you can keep up with the loan payments.

     High debt burden: If you already have a high debt burden, then many lenders aren’t willing to add to it.

     LImited time in business: If you’ve only been open for a few months, lenders may be wary of your ability to repay the loan in the long term.

What Happens if I Miss a Payment on My Business Loan?

If you miss one payment on your business loan, your lender may offer you a reprieve. For business owners able to catch up on the payments, the missed payment will just be a bad mark on your credit score. But if you miss multiple payments, your business loan may go into default.

Many lenders are willing to work something out. Reach out to your lender as soon as possible if you know you will miss a payment.

What Happens if My Business Loan Goes Into Default?
If your business loan goes into default, the lender will take possession of the collateral for liquidation. After selling the assets, the lender will use the proceeds to recoup their costs.

About the Author

Sarah Sharkey

Sarah Sharkey

Personal Finance Writer

Sarah Sharkey is a personal finance writer who enjoys helping people make better financial decisions.

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