No Collateral Financing
Unsecured methods of small business finance include any method of financing that is not secured with collateral. The most common methods of unsecured business finance is an unsecured loan or an unsecured business cash advance. Business loans that are unsecured are primarily targeted to newly established small businesses which lack the assets necessary to acquire secured financing.
Since small businesses are by nature more volatile, poor sales and negative cash flow are a common occurrence that could easily lead to late or missed loan payments. Not only will the small business risk loosing its assets, but such financing can blemish the business’ credit rating, sales history, and cash flow and thus make it difficult for the business to get outside funding later on.
What are Your Options?
An unsecured small business loan is not your only finance option. There are several finance alternatives:
Get credit. There are two main credit options for the small business. Either you can request an overdraft line of credit from your bank, or you can apply for a business credit card.
Lease your equipment. Instead of purchasing all of your equipment and furniture, try leasing it. One of the greatest benefits to leasing equipment is that business owners can free up their working capital which can then be used to operate and grow their company.
Factor your accounts receivables. This is a good finance option for your small business if a lot of capital is tied up in outstanding customer invoices. In this case, a business sells its accounts receivable at a discount to another company who provides instant payment.
Get an unsecured business cash advance. A business cash advance is another attractive method of unsecured business finance. A business cash advance is based solely on future credit card sales. The cash advance company purchases these future transactions at a discount and provides your business with an instant injection of capital. There is no interest charged on this funding, no restrictions on the use of the money, and there is a flexible repayment schedule that follows the flow of your business’ sales activity.
Seek angel or venture capital. Angel capital and venture capital are forms of equity capital pooled from wealthy individuals, experienced entrepreneurs and investors, and occasionally, institutions. Both forms of capital are generally offered to new or developing companies with the potential for profitability and rapid growth in exchange for shares in ownership and control over company decisions. Angel investors, like venture capitalists, make their return on investment in the event of an Initial Public Offering or the trade sale of the funded companies.
Asking loans from family and friends. Family and friends are a natural source of early funding, and they may be more likely to give to you than the bank. To help make the process more formal and secure, there are numerous peer-to-peer lending sites online that provide identification and verification services, an assessment of the credit risks, documentation that covers the loan’s terms and conditions, as well as the repayment schedule and tax payments as determined by both parties.