How To Get a Business Loan with No Collateral

Many of the most popular small business funding options in Canada require collateral, including bank loans and Canada Small Business Financing program loans, especially if you’re seeking a larger loan amount.

But what if you’re a small business owner who doesn’t have collateral to secure a loan? Don’t worry—there are a number of funding options available to you as well.

Business loans without collateral are ideal for businesses that:

  • Cannot offer collateral, but may be able to offer a personal guarantee or UCC lien
  • Are seeking smaller loan amounts
  • Need fast funding to cover unexpected expenses or opportunities to grow
  • Are seeking shorter term lengths

Business loans without collateral are often referred to as “unsecured financing”, but this term isn’t technically accurate. Most business loans without collateral are secured by some kind of asset. Keep reading to learn more about these options, as well as what funding options are available to businesses with no collateral. But first, let’s take a closer look at what “collateral” actually means.

What is Collateral?

“Collateral” refers to any asset that a lender will accept as security for a loan. Providing collateral reduces the risk to the lender by providing them with assets they can liquidate if you default on your loan. This means that the lender will be able to recoup some of their costs if you can’t pay.

Collateral assets can include:

  • Real estate
  • Equipment or vehicles
  • Cash savings
  • Business inventory
  • Other physical items—anything with a title the bank can take over

Can I Get a Business Loan with No Collateral?

Yes, you can get a business loan with no collateral in Canada. There are a number of funding options available to businesses with no collateral. While most traditional lenders will require some form of collateral or guarantee, alternative lenders have more flexible approval requirements that typically do not require collateral.

Some business loans with no collateral, especially those from traditional lenders, will come with other conditions and costs, such as:

UCC liens: Blanket liens that allow a lender to attach any or all of your business assets if you default. This means that your lender can liquidate any assets associated with your lien if you are unable to repay the loan.

Personal guarantees: A formal written promise that an individual, usually the business owner, will repay the unsecured debt out of their personal funds if the business defaults.

Whether such conditions are attached or not, loans without collateral typically come with higher rates and fees, shorter terms, or smaller loan amounts. Different forms of unsecured financing will use different fee structures—for example, merchant cash advances use a factor rate instead of a traditional interest rate. Be sure to compare your options closely, factoring in your business goals, credit history, and financial forecast before you sign a contract.

How To Get a Business Loan with No Collateral

There are three things you need to understand before you can get a business loan with no collateral:

  1. Lender types
  2. Funding options
  3. Required documentation

Let’s take a closer look at these factors.

Lender types

In Canada, small business funding is available from a number of different types of lenders, including traditional lenders like banks and the Canada Small Business Financing Program, alternative lenders like Greenbox Capital®, and peer-to-peer lending marketplaces. Each of these lenders works differently and will have different collateral requirements:

  • Traditional lenders, including Canada Small Business Financing Program loans, will almost always require collateral or some form of guarantee such as a personal guarantee or UCC lien. These lenders offer the largest loan amounts with the lowest rates and longest terms, but they also have the longest application timelines and strictest approval guidelines with high minimum credit score requirements.
  • Alternative lenders typically do not require collateral and have flexible approval requirements that are favourable to more small businesses, including those with lower credit scores. These lenders also offer a streamlined application and can even provide funding in as little as one business day.
  • Peer-to-peer lending occurs on P2P lending platforms that connect investors directly with business owners who are looking for funding. Peer-to-peer lending typically does not require collateral, but approval requirements will depend on the loan amount and terms, as well as the policies of the lending marketplace.

Funding types

Different types of lenders offer different types of funding. Here are some of the most popular unsecured loan options for small businesses in Canada:

  • Invoice factoring: Invoice factoring is another form of alternative funding that is also available from alternative lenders. A business will sell their unpaid invoices to a lender, called a “factor”, and the factor will advance the business the invoice’s value up to 90%. The remainder is paid out to you when the invoice is paid by your customer or client. Invoice factoring is considered a form of “self-securing financing” because your unpaid invoices act as collateral. 
  • Merchant cash advances: Merchant cash advances are an alternative form of financing known as a purchase of future receivables. Available from alternative lenders, MCAs are approved primarily based on your business’s health and potential, with greater focus on monthly sales and revenue than your financial history. No additional collateral is required because the value of your future sales essentially acts as collateral.

Merchant cash advance loans are popular for funding businesses that prefer repaying the loan on a daily basis as a percentage of sales. Get a business loan now!

  • Equipment financing: Available from traditional lenders, equipment financing is another form of self-securing financing that is designed specifically to fund the purchase of new equipment. The equipment purchased acts as collateral to secure the loan.
  • Unsecured lines of credit: Lines of credit offer the most flexibility by allowing businesses to draw and repay from the line as needed, only ever paying interest on the amount borrowed. Lines of credit may require collateral from a traditional lender, but alternative lenders may not have this condition. Unsecured lines of credit may however have lower limits and higher rates.

NOTE: Canada Small Business Financing program loans will require collateral. Before you apply, compare Canada Small Business Financing program loans and alternative lending.

Required documentation

If you don’t have collateral, you will need to prove that your business is stable and not a liability to a prospective lender. This means preparing up-to-date financial documentation before you apply, including:

  • Business and personal credit records
  • Balance sheets
  • Profit and loss statements
  • Cash flow statements
  • Overview of business expenses and cash flow

Providing a detailed business plan, forecasted financial statements, and a strong credit history will make a positive impression on a prospective lender and can help you acquire unsecured financing if you aren’t able to provide collateral.

No Collateral Small Business Funding in Canada

If you don’t have collateral, alternative funding from direct online lenders like Greenbox Capital can help you access the working capital you need to maintain operations, cover unexpected expenses, and continue to grow your business.

In addition to no collateral requirements, alternative lenders offer a number of advantages over financing from traditional lenders, including streamlined online applications with less paperwork and more flexible approval requirements, faster processing and approvals—sometimes in as little as one business day—and more room to negotiate terms.

Many types of alternative funding are available to businesses who can’t provide collateral, don’t meet the strict criteria of traditional lenders, or need funding quickly. With funding from as little as $3,000 up to $500,000, business owners in Canada can access alternative funding that suits their unique needs, including merchant cash advances, term loans, invoice factoring, and business lines of credit.

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Andrea Carmine

Andrea Carmine is the Content and Social Media Manager at Greenbox Capital®. With over 5 years of experience in digital marketing, social media management, content, and social media strategy, Andrea is an expert at developing and executing the company's online marketing initiatives including website content, blog posts, social media content, and email campaigns. Andrea is a graduate of Florida International University with a BA in Communication and Media Studies.