Whether you are in the process of starting your company or want to expand the one you own already, there are times that you will need a business loan to help finance a project. There are multiple options available to you to get your additional funding. However, most of them require that you commit something that is the same value as the loan, such as real estate. With the right credit and cash flow, you can qualify for collateral-free financing.
Why Collateral Might Be Necessary
A bank may want you to put an item down for collateral when you apply for a business loan with them to assure that they will get their money back from you regardless if you pay it off or default. If you are unable to pay the financing back, they will take possession of what you offered then sell it to recoup their funds. This takes away the risk they are accepting for themselves and their investors when they issue business loans to their customers.
What You Can Use a Collateral Loan For
You can consider a collateral free business loan if your company is growing and you need more space. The funding will cover the construction costs and any other expenses that you might occur as work is being done. It can be utilized if you run into an emergency and need cash quickly to take care of it. Getting your company in front of potential customers is vital and these funds will help boost your advertising campaigns. It can also supplement your payroll if you must hire new employees before your profits are able to provide for them.
How To Secure This Financing
To get this type of business loan, you must have excellent credit. Your financial institution will pull your credit report and analyze it before they will discuss a collateral-free loan with you. They will also study your financial reports to see how much cash you are bringing in as compared to your expenses. They will want a steady flow of money coming into your company to cover the loan payments to them. The final piece of information they will require is proof that you are loan-free with any other company. When they give you the financing, they will put a UCC-1 lien on your business. This means that if you were to go into default, they get their money first before anyone else you might owe a debt to.