Seeking a startup business loan but have bad credit, no collateral or some other issue? Fret not: you still have options for financing. 

Unsecured business startup loans allow small business owners to obtain financing with no collateral, little credit history or bad credit. 

Depending on the situation, your company may be eligible for specialized guaranteed financing, such as loans to women, minorities or veterans. You also can find equipment loan opportunities if you’re a startup. 

Startup Business Loans: No Collateral

Small business startup loans and grants that don’t require collateral can come from a variety of sources, including:

  • Small Business Administration (SBA) loans
  • Business credit cards
  • Business grants
  • Loans from friends and family
  • Crowdfunding

Here’s what you’ll need for each of these financing sources when you don’t have collateral.

Consider an SBA Loan

When applying for an SBA loan, the most popular type of government loan to start a business, collateral has less to do with your eligibility than factors such as:

  • Whether your business is a for-profit venture.
  • Whether your business operates in the U.S. or its territories.
  • How much personal time and money you’ve invested in your company.
  • Whether you’re unable to qualify for loans from other lenders.

To qualify for an SBA loan, you’ll need:

  • A sound business plan, including a financial plan that demonstrates your long-term ability to repay your loan. 
  • To qualify as a small business in terms of how many employees you have and how much revenue you make. 

You’ll have the best chance to secure a loan if your personal FICO credit rating score is 700 or more, which is considered “good,” although a lower score doesn’t necessarily disqualify you.

Apply for a business credit card.

Apply for a Business Credit Card

Another option you can try is applying for an unsecured business line of credit. Unlike a secured line, you don’t need collateral for an unsecured line of credit. You do need to convince your lender that you’re a good credit risk who can pay them back.

Most providers will want to see:

  • A FICO credit score of 500 or more (representing the upper third of the “very poor” range), although higher is better.
  • A history of repaying loans on time.
  • Evidence that you’ve been in business for at least 6 months to 2 years and are on track to make at least $25,000 to $50,000 in annual revenue.

You’ll need documentation to back up your creditworthiness, such as bank statements, financial statements and tax returns.

Research Business Grants

Even if you don’t have a good credit rating, you can still qualify for business grants. Unlike loans, grants don’t need to be repaid. 

Government agencies and private institutions award grants based on factors such as need or merit. You may qualify for a grant if you fall into an economically disadvantaged category, such as being a single mother or if your business endeavor represents innovative potential, such as developing a source of alternative energy.

You’ll need to do research to find a grant you’re eligible for. Also, you’ll need to submit whatever grant proposal package your particular grant requires. This typically includes submitting a business plan.

Ask Family or Friends

One of the most common ways to start a business with no collateral is borrowing from family or friends. 

You will stand a better chance of convincing friends and family to lend you money if you can show them a business plan explaining how you’ll generate enough revenue to pay them back. 

They also may be more inclined to lend you money if you sign an agreement promising to pay them back in specified amounts according to a timetable just as you would with a regular lender.

Try Crowdfunding

Crowdfunding sites allow you to reach out to strangers online and convince them to help fund your business enterprise. Crowdfunding platforms vary, with some relying on the goodwill of your audience to persuade them to contribute. Others offer contributors equity or function as peer-to-peer lending networks.

To run a successful crowdfunding campaign, you’ll want to compare sites to find the right platform for your business. You’ll then need a compelling story and persuasive pitch that makes your audience want to help you. A video can often help make your pitch more emotionally engaging.

Startup Business Loans: Bad Credit

While it’s easier to get a business loan if you have good credit, you may still be able to qualify for a loan with a lower credit rating. In some cases, you can even avoid a credit check entirely by applying for startup business loans using an employer identification number (EIN). You will sometimes find this type of loan offered as startup business loans for bad credit guaranteed.

Keep in mind that financiers who are willing to lend to you if you have low credit typically will require you to pay a higher interest rate.

If you have customers who owe you money, you may be able to obtain financing through invoice factoring. This is an arrangement where you sell a financial provider your unpaid invoices at a discount in exchange for a lump sum. They get repaid when they collect from your customers. 

Another alternative is revenue-based financing, where lenders agree to give you money now in exchange for a cut of your future revenue.

Financing Guaranteed

You may come across the term guaranteed business loans in your quest for financing. This term can refer to loans backed by personal collateral, or it can refer to loans backed by the SBA. In the latter case, the SBA partners with a lender such as a bank or nonprofit and agrees to back the loan if you don’t repay it. 

SBA guaranteed loans include several different programs:

As with other SBA loans, lenders reviewing your eligibility will review factors such as personal credit, financial statements and how long you’ve been in business.

Startup Business Loans for Women

As U.S. businesses run by women continue to rise, the SBA as well as some typical and alternative lenders offer business loans geared toward female business owners. 

SBA loans are long-term loans and are easier to get for women with strong credit. Women with lower credit ratings or who need loans quickly may find more luck with sites that offer online business loans for startups. For women who can’t qualify for larger loans or don’t need as much capital, microloans are an option.

Small Business Startup Loans for Minorities

As a minority business owner, you may be able to increase your chances of qualifying for an SBA-backed loan by participating in the SBA’s 8(a) business development program, which is geared toward leveling the playing field for “small disadvantaged businesses,” according to the agency.

Some lenders and institutions provide loan and financing opportunities for specific minority groups. For instance, the Department of the Interior’s Indian Affairs bureau has a Division of Capital Investment to promote access to funding for tribes and individuals.

Special loan opportunities exist for military veterans.

Startup Business Loans for Veterans

Special loan opportunities exist for military veterans, too. 

The Department of Veterans Affairs doesn’t offer loans directly. Rather, it works with the SBA to extend several types of VA loans to veterans. These include SBA Express Loan and 7(a) loans where upfront guarantee fees are waived for veterans. 

Businesses that are struggling because their owner was called up for active duty may be eligible for loans under the Military Reservist Economic Injury Disaster Loan (MREIDL). Veterans who have been injured in the line of duty may be eligible under the SBA’s 8(a) Service-Disabled Veteran-Owned Business Contracting Program (SDVOSBC). Private and nonprofit groups also offer loans for veterans.

Equipment Loans for Startup Business Owners

Equipment loans fall into a special category because when you’re taking out a loan for equipment, the equipment itself effectively serves as collateral. 

That means lenders extending these loans court less risk, which improves your odds of qualifying for financing. 

When applying for an equipment loan, you’ll need to provide a quote for the equipment you intend to buy, in addition to the documentation you would use to apply for other loans.

No Collateral? No Problem

No-collateral loan and financing opportunities for startups and small businesses are plentiful. Consider all your alternatives, and don’t let not having collateral keep you from finding the financial resources your business needs to succeed.