Small Business Startup Loans with No Collateral

Find out more about your options as a startup when it comes to seeking out finance and compare your options with Savvy.

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, updated on July 26th, 2023       

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Can I get a loan for a small startup business with no collateral?

Yes – it's possible to get loan finance for a startup even if you don’t have any assets to offer as collateral. Unsecured finance, for example, is a very common type of loan for small business owners which requires no deposit or collateral and is available from almost every business lender. However, that doesn’t necessarily make it easy.

When you apply for a normal business loan, the lender looks at your business for details like how established it is, how long it’s been trading and what its customer base is like – they prefer loaning money to well-established businesses with a solid track record and good cash flow. With a startup, those details are either absent or very limited; you might only have a few months of trading to base your application on, if any. This can make it a lot harder to persuade a lender to loan the money to get your new business established. You're more likely to get approved for a loan with a private, online lender than an application to a big bank.

Fortunately, there are specialised startup loans on the lender market, designed to help startups and other new businesses got off the ground. They’re a form of unsecured loan and their interest rates are relatively high to offset the risk involved in loaning to a brand-new business, but they can be a good option to consider for businesses who don’t otherwise qualify for traditional finance.

What no collateral finance options are there for a small startup business?

There are a few different possibilities for financing a startup business when you have no assets to offer as security. Some can be a harder than others to obtain, but any of them could be a valid way to get your startup business up and running, collateral or no.

Unsecured loans – An unsecured loan is one of the easier types of loan to get approved, although this is more complicated for a startup. You’re unlikely to be offered more than around $30,000 if your business doesn’t have any collateral to put forward. This category also includes dedicated startup loans.

Personal loanspersonal finance could be an alternative option for small business owners who can’t meet the requirements of a business loan. These are based solely upon the individual applicant’s financial situation, such as their credit score, income and expenses. Personal loans can range from $2,000 up to around $50,000 and can be paid over a term of one to seven years, although the lack of security in your application could once again hinder your chances of being approved for a high amount over a long term

Instant cash loans – In some cases, if you’re only looking for a small amount of money and expecting to repay it quickly, an instant cash loan from an online lender might be an option. These are quick, easy to get approved, can be for up to $5,000 and you can take up to 2 years to repay the money. But the fees can be on the expensive side.

Business credit – Another option if you’re looking for a smaller amount of shorter-term finance is credit. Some lenders offer credit cards with 0% interest for the first 12-17 months – provided you abide by the conditions of the card. For example, the 0% interest rate normally doesn’t apply to cash advances, and some cards have a balance transfer fee if you want to transfer an existing debt onto them. You still need to make some repayments and you need to have the money paid off before the introductory period expires – at which point the card reverts to its standard interest rate, which won’t be cheap.

What documents should I prepare for a small startup business loan application?

If you’re applying to a lender to finance your startup business, there’s a number of documents that you’ll need to provide your lender with.

  • A detailed business plan – To persuade a lender that you know what you’re doing when launching a startup business, you’ll need to have a comprehensive business plan what your business is going to do, how you’re planning to do it and what steps you’re going to take to make it happen.
  • Research on your market – You’ll also need to do some homework on the market you’re moving into. Who is your target audience? Who are your major competitors? What are the threats to both your specific business and your industry as a whole? Your lender will do their own research as well, but by supporting your business plan with information on your target market, you’re demonstrating that you’ve thought these issues through and accounted for them.
  • Financial & business records of any trading to date – If your startup has commenced business, you’ll want to include records of how it’s done financially so far. This doesn’t necessarily give a very reliable picture of how the next few months will go, but it’s better than no information at all.
  • ID & supporting documents – You’ll also need to provide ID and some supporting documents, which include your personal bank statements – given your business doesn’t have a track record at this point, you’ll probably find that more weight is placed on your own credit and financial history.

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Frequently asked questions about no collateral startup loans

What can I do to improve my chances of loan approval?

One thing that can certainly help if you have a friend or family member in a strong financial situation who’s willing to act as guarantor, committing to picking up the bill if you’re unable to pay. Offering a deposit can also improve lender confidence if it’s an option and, lastly, a good credit rating will have an impact – so looking after your credit score is always a good idea.

Can I add collateral to a small business loan once my startup takes off?

You have the option of refinancing to a secured loan once your business is established and you have some assets. This is potentially a very good idea, as a secured loan taken out once your business is more established will most likely receive much better interest rates. You’ll want to be wary of fees from your lender for paying the loan off early, of course.

If I have no collateral, is there any advantage to buying an existing small business?

There are various advantages if you decide to go with buying an established business rather than a setting up a new startup. One of the main ones is that the success of the business you’re buying would influence the terms you get for a loan, and the business might have assets that can be offered as security on a loan. You’ll need to have a substantial deposit to buy established though – generally 20% to 50% of the loan amount.

How do I start looking for a small, no collateral loan for my startup business?

The first place you’ll want to head is online. Not just because of the wealth of information available on the internet, but also to get access to a wide range of online lenders – historically some of the most accessible and risk-tolerant lenders on the Australian market. If you’re on the hunt for a small business loan, why not start with Savvy? You can compare small business loan options from a range of Australia’s top online lenders and quickly find a business loan option suited to your circumstances.

Will being a startup business impact on my interest rate?

Yes – a startup business is always a bit of a gamble; there's never a guarantee that a new business will take off. One of the most common ways that lenders compensate for risk is by charging more interest, which acts like a built-in insurance policy on the loan. As such, you shouldn’t expect the best interest rates on the Australian market for a startup business loan – especially without collateral to offer.

Will the credit rating of my previous business affect my startup business loan application?

Most likely, yes – when assessing a loan application, lender generally will consider the credit history of the new business’ directors – which will include previous businesses you’ve owned or played a significant role in.

Should I look for an interest-free grant instead of a standard loan for my business?

You could – interest-free funding and grants from your state or federal government could end up being the best option for you in terms of your business’ finances. However, there are generally restrictions placed on how these funds can be used, as well as strict eligibility criteria for businesses, so you may find simply applying for an unsecured business loan and paying interest is the best option for you.

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