Many business owners search for loans that do not require a credit check. These loan products may include ACH loans that pull payments directly from your business bank account, equipment financing loans where the equipment secures the loan, or invoice factoring.
These lending options look past personal or business credit scores to focus on the other four Cs of creditworthiness: capacity, capital, character, and collateral.
A collateral-based loan uses a physical asset like a house, car or business equipment as security for the loan. The asset is returned at the end of the loan, typically with a lower interest rate than an unsecured loan. Lenders feel less risky lending money secured by a tangible asset than with an unsecured loan, which may be repossessed in the event of a default.
Collateral-based loans can be obtained from banks, credit unions and online lenders. It’s best to shop around and find a lender that offers the loan type you need. Some lenders offer prequalification, which doesn’t require a full application and will not impact your credit score.
Business owners and other entrepreneurs often use this type of financing for a variety of purposes. It’s particularly useful for newer companies that don’t have a strong credit history or have experienced recent poor cash flow. It’s also popular among growing companies that have a high level of invoiced accounts receivables. Using these accounts as collateral provides more clout in negotiations for the terms of the loan, including the length of payback and payment milestones.
Individuals can get this type of loan from their financial institution or from pawn shops, although the latter typically comes with high costs. It’s best to compare rates and terms before making a decision. Many lenders offer online prequalification, which is usually free and will not affect your credit score.
Asset Backed Loans
Asset-based lending (ABL) involves a lender leveraging the value of your business’s assets as collateral for a loan. These include inventory, accounts receivable and equipment, as well as commercial property. These types of loans can be structured as term loans or lines of credit, with the latter allowing you to draw on your assets on an ongoing basis as you need them. They can help fuel growth or even sustain your company during challenging times, but there are a few things you should know about them before you apply.
Lenders that offer these loans typically evaluate your assets using a field examination. They may also rely on third-party appraisals of inventory, machinery and equipment, real estate and intellectual property.
Unlike unsecured business loans, these types of financing options can often be approved more quickly. This is because the lender’s approval process is based on the value of your pledged assets rather than historical financial statements and predictable cash flow.
However, you should be aware that defaulting on an ABL loan can put your physical assets at risk and negatively impact your personal and business credit. You should also be realistic about how much working capital you need and only borrow what you need to keep your business running. Be sure to monitor your balances and report on your collateral regularly to make sure you stay current with any debt you have incurred.
If you need money to meet an urgent business need, short-term loans may be the right choice for you. Unlike other loan types, these loans are designed to be paid back within a year, sometimes in a matter of weeks or months. These loans offer a more relaxed credit approval process and are easier to qualify for than traditional bank loans. Additionally, the repayment terms are shorter, so you’ll have to pay less interest overall.
However, it’s important to remember that short-term loans are expensive and should only be used for emergency needs. If you find yourself needing a short-term loan in the future, it’s important to compare all of your options. It’s best to work with a lender that understands your unique financial situation and business goals, so they can help you find the right financing solution for your needs.
The easiest way to compare lenders is by looking at the rates, fees and repayment terms listed on their websites. Most lenders also have an online application that allows you to quickly prequalify for a loan. Then, you can choose which lender to apply with based on their lending criteria and loan estimate. Typically, you’ll be asked to provide basic information, including your bank account, form of identification, paystubs and tax forms. This data is then used to verify your identity and financial history.
Lines of Credit
With a business line of credit, you can borrow funds on an as-needed basis and repay them whenever you want. The key difference between this and a term loan is that you only pay interest on the money that you use. For example, if you have a credit line with a $50,000 limit and only spend $10,000, you will only pay interest on that amount.
A business credit line also doesn’t require the same level of collateral as a secured business loan, but you may be required to provide a personal guarantee to obtain this financing option. Lenders typically evaluate your personal credit, bank statements, business tax returns and profit-and-loss statements before approving you for a line of credit. You can typically find lenders who offer lines of credit through online marketplaces that specialize in providing small-business loans.
If your lender reports activity to the business credit bureaus, you can use a line of credit to build your business’s credit score over time. However, you should note that most lenders only report to the business credit bureaus if you’ve been in business for at least two years and have a good record of generating revenue. Some lenders may also recommend “terming out” your credit line at the end of its term by refinancing it into a term loan to reduce monthly payments.business loans no credit check