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Getting a Business Loan With Bad Credit and No Collateral

Brody Hall
By Brody Hall
Davor Štefanović - Editor for KeepShoppers
Edited by Davor Štefanović

Updated February 10, 2023.

Shopify seller getting a small business loan

While it’s very exciting to launch a career as a Shopify Seller, it can be scary if you need to apply for funding, especially if you need unsecured business loans with bad credit. The good news is that it’s not impossible to get a small business loan without collateral.

Furthermore, if your credit rating is not the best, your application can still be successful on the condition that your business plan is comprehensive.

To help you, here are some suggestions for how to obtain a business loan with bad credit and/or no collateral.

Can You Get a Small Business Loan Without Collateral?

Usually, banks and other traditional financial institutions won’t give business loans without collateral. Though, online business lenders are more known for approving collateral-free loans for new businesses. However, there are two significant downsides to this approach:

  1. These loans generally have a much higher annual percentage rate (APR).
  2. The repayment period might be shorter.

The same principles apply if you need to get a loan without income proof.

If you use an alternative lender, you might also have to give a personal guarantee. In other words, your personal credit score and personal assets may be in jeopardy if the business fails to repay the loan.

If you need to bridge the gap between paydays, there are also cash advances that you can consider. These are short-term (or immediate) business loans that allow you to get cash as soon as the same day in some instances.

How to Get a Startup Business Loan Without Collateral

A financial emergency, like losing your job or a computer that crashes, can mean that you need to get a loan in a hurry. In this case, there are emergency loans (even if you have bad credit). Here are some of the most common types of financing you may be able to get without an excellent credit score or providing any collateral upfront.

Equipment Financing

If you need to buy equipment specifically, this is a type of no-collateral business loan. Instead, the equipment that you buy will serve as collateral. Usually, after the sum has been repaid, you'll become the proud owner of the equipment.

SBA Loans

Those based in the US can also apply for a US Small Business Administration loan. If you need startup business loans with bad credit and no collateral, this could be the answer. Usually, you will need to include a business plan with your application.

Credit Card

You don’t necessarily need to apply for a traditional business loan. Instead, it might make more sense simply to apply for a credit card. If you go this route, just make sure that you familiarize yourself with the annual costs involved in opening a business bank account and the APR. Also, the majority of credit cards for small businesses require a personal guarantee.

Peer-To-Peer Lending

If you’re unsuccessful with bank loans, you can also try a peer-to-peer lending service. In short, an online platform will link a borrower with a possible investor. While these can be quick business loans, bad credit might mean that you will get slapped with a higher interest rate (if you meet the minimum credit score requirement).

Are Business Loans Worth It?

Just like starting a business comes with risk, so too do personal loans without collateral or long-term business loans with bad credit. At the end of the day, if it’s your passion and you know that your expected cash flow will allow you to make your repayments on time, applying for a business loan might be your only option.

However, to make sure that it’s worth it, study the terms and rates. Depending on the underwriting, your personal assets and credit score might be at stake.