Business loans help entrepreneurs to create operational space, repay debt and invest in new activities to grow the business.
Traditional lenders, mainly banks, often require collateral for a loan, for example in the form of real estate, machinery or other equipment. This is by no means an option for all entrepreneurs. That is why business loans without a pledge are a very popular solution, especially for those who have a small business.
If you are in the start-up phase and are working hard on building your business, have a good website, but do not have the opportunity to borrow money to carry out your ideas, it can be incredibly frustrating. Most banks are unable to lend money to a company without a history, even though it is clear that the business concept will generate money.
In such situations it is tempting to take out a business loan without a pledge. It is advisable to think about this. Firstly, is it still possible to repay the loan within a reasonable period of time? Secondly, what happens if the business idea does not develop as you had expected? Do you still have the option to repay the loan? This is the reason why lenders ask for a pledge.
Compare business loans without a pledge
Whether you take out a business loan with or without a pledge, first you have to ask yourself whether you really need a business loan in all cases and can pay back? Once that decision is made, it is advisable to check your lender – especially those who offer loans without a required pledge. Ask yourself, how is it possible that they can offer a loan without being insured?
For lenders there is always a risk if they lend the money – the risk increases when no collateral is provided when entering into a business loan. That is why you will also notice that a business loan without a pawn is often more expensive than business loans with a pledge. This means in the first place that you have to be aware of how high the interest rate is. Next, you need to know what costs are incurred by the lender if you want to borrow money. For example, there may be high administration costs, service costs or connection costs, in addition to an already high interest rate in case of late payment. This type of allowance is rarely shown clearly in an agreement and therefore you must pay special attention to studying the agreement.
Players on the market
The number of organizations offering non-collateralised commercial loans has increased and these lenders now have the opportunity to be very flexible regarding the different types of loans they can offer. This is a very positive development for small businesses and entrepreneurs who usually can not offer collateral. Unfortunately, there are also bad apples in this sector. There are market players who exploit this fact instead of helping companies realize their vision. They destroy companies that do not understand what the loan entails in its entirety. This can be anything from high interest rates in case of delays to administration costs and extension of certain loans with maturities that the company has not understood.
It is therefore extremely important that you as an entrepreneur do your “homework” and check what is relevant. To a large extent, it’s just common sense: “If you see something too good to be true, it’s probably …”.
Business loans without a pledge – a good option?
Taking out a business loan without a pledge can be attractive and can be a perfect opportunity to achieve what you want. But you must be aware that there are other possibilities that cause fewer risks. If you know that you have a potentially great chance of repaying the loan within a reasonable period of time, and you believe in your business, more than anything else, a business loan without a loan may be something for you. If you are less sure about this, be very careful and think about other solutions.