Like many small business owners, you may have to pay a short-term expense such as a higher tax bill, various repairs, purchase of essential equipment, or perhaps you are looking for a long-term investment method such as remodeling, expanding, investing in inventory or taking on new employees.
If you are just starting out, it may not be a viable option to go to a bank. Even if you meet the minimum requirements for getting a loan such as the minimum operating period and annual revenue, you may have to provide collateral for the bank’s business loan.
Most people are familiar with how secured business loans work, since most of them have already used this type of loan in their private lives. For example, a mortgage is the best-known guaranteed loan, where the collateral is the house that you have purchased. If you do not pay your mortgage repayment, the lender can ultimately seize the property.
The purpose of offering a guaranteed loan is to exclude the risk for the lender.
This is the reason that so many banks only offer this type of loan, especially to young small businesses that are naturally risky.
Most banks require some sort of liquid assets that can easily be converted into cash in the event of execution. The easier it is to convert the collateral into money, the more likely you are to get business financing from a bank. Nowadays, some of the most used collateral with banks is commercial real estate, company equipment, inventory or stocks.
Most people think that a loan can be the cheapest option for getting a business loan, but it can be quite difficult to qualify for a business loan and it can even take months to get a clear answer. The collateral required for this type of loan may also need to be checked, which only requires more time and adds stress to your small business.
Obtain a small business loan without collateral
Although it is generally assumed that secured business loans obtained by providing collateral have better terms than unsecured business loans, there are many unsecured business loans with similar terms that do not require collateral. Along with the time you save during the application and approval process, access to finance when your business needs it can make a big difference.
This is the main reason why more and more smaller business owners are trying alternatives such as silent factoring or business loans provided by private financiers or fintech. Factoring is a great option to finance your sales invoices and to keep your business strong and successful.
In addition to the simple application procedure, quick response and payment, some of these alternatives are often based on a personal guarantee. This means that if you apply for a loan with a personal guarantee instead of a secured loan, you guarantee that you, as an individual, will pay the debt if your company defaults on the loan.
Personal guarantee is not a concern, but it is important that you understand how it works
It is important to understand that a personal guarantee does not require fixed assets – such as your apartment or family valuables. You usually have to prove that you have certain funds to prove that you can pay the loan in the event of non-compliance. Nobody takes out a business loan with the idea of not paying it back, but in reality not all companies are successful and not all debts are repaid. Therefore, most private lenders who provide unsecured business loans require personal guarantees.
Another aspect that you must take into account is that you also have to meet certain credit scoring criteria in order to be approved for a personal guarantee. Even if it is not much, some private lenders and fintech companies may request and submit a list of all your assets and liabilities.
At Dutch Hammer lending you can apply for an unsecured business loan, where only a personal guarantee is used in just a few minutes and you receive an answer the same day. Dutch business owners with at least 12 months of business activity and a business bank account can qualify for cash with a repayment period of between 6 and 18 months.
Get a business loan without collateral
You must always have a plan to repay a loan when you take out a business loan to finance your small business. Always ask yourself why you want to take out this loan.
When you look at financing your company you must look at what is more important to you and your company at that stage. The cost of the loan will always be a factor but hiring a new customer, buying equipment that allows you to expand your business, investing in marketing or hiring new staff can be a smart investment for your business, then wait for the lowest interest rate on the market. The choice is yours.
Make sure you understand the loan conditions
Before you agree on any loan, we recommend that you look at your company and your finances objectively. You must understand that there is a possibility that your business plans may fail despite your best efforts and intentions. Go through all possible ways in which each condition can affect your business and your personal finances across the board.