Business Loans

How to Get Small Business Loans with No Credit or Collateral

Lina Tay
July 25, 2023

How to Get a Small Business Loan with No Credit or Collateral

Navigating the financial landscape of a small business can be complex, especially when it comes to securing additional funds. Obtaining a loan from a financial institution or a Minlaw licensed moneylender is a common strategy, but what happens when you don't have a strong credit score or collateral to offer?

This predicament is more common than you might think, thankfully, there are alternatives available. 

In this guide, we will walk you through how to get small business loans with no credit or collateral. We will explore loan options that don't require collateral, delve into the impact of a poor credit score, and provide helpful tips on how to improve your credit status. We'll also share loan opportunities specifically designed for those with less-than-stellar credit scores.

Loans Which Do Not Require Collateral

Collateral is defined as something pledged as security for the repayment of a loan. In case of a default, the pledged asset is used to recoup the loan. Despite the potential risk, some borrowers favour secured loans due to the slightly lower interest rates. For those that lack a suitable asset to pledge as collateral for a business loan, they’re a few options to consider. 

1. Merchant Cash Advance

Merchant cash advances also known as MCA is a loan received based on a projection of future revenue. With this type of loan, lenders provide an advance, usually a lump sum, in exchange for a percentage of future credit card and debit card sales. 

2. Invoice Financing

Invoice financing enables businesses to borrow against their outstanding invoices. The borrowing limit is typically up to 90% of your company's receivables. For instance, if your customers owe you $100,000, you could potentially secure a loan of up to $90,000.

3. Guarantor Supported Business Loan

If your personal credit record is bad, having a strong guarantor with a healthy credit history and a private property ownership can still increase the likelihood of obtaining a business loan in Singapore and potentially help secure more favorable borrowing terms.

Therefore obtaining an additional guarantor with an annual income of at least $30,000 and a healthy credit record is a viable option to bolster business loan applications. The presence of a guarantor can increase the likelihood of loan approval and potentially allow for a higher loan amount for business ventures. Particularly advantageous is if the guarantor is a private property owner, as this can further enhance the borrower's financial standing and increase the available loan funds.

Although the property won't be taken as collateral, it will be factored into the net worth assessment of the individual, contributing positively to their overall financial profile. By leveraging the guarantor's financial stability and property ownership, entrepreneurs and businesses can improve their chances of securing favorable borrowing terms and meeting their financial objectives with greater ease.

For banks, guarantors need to be at least a director or shareholder of the company while non-bank lenders accept all 3rd party guarantor. All guarantors need to be Singaporean or PR.

Impact of Bad Credit

Understanding the role of credit scores in the lending process is vital for any business seeking a loan. In Singapore, your credit history is translated into a score ranging from 1000 to 2000, with 1000 indicating a weak credit history and 2000 reflecting an excellent track record. 

A lower score can paint you as a high-risk borrower, potentially causing lenders to hesitate when considering your loan application. The following tips can help you improve your credit score 

Tips to Improve Credit Score

Maintaining a good credit score is an ongoing process, and it's never too late to start making improvements. In Singapore, credit bureaus record your repayment history over a rolling 12-month basis, and this forms the foundation of your credit score. 

This time-bound nature of the scoring system means that even if you've had a rocky financial past, a focused, proactive approach to debt settlement can help improve your score within a year. Let's look at some strategies to enhance your credit standing and increase your chances of securing a small business loan.

Prioritise timely repayments: Defaulting on payments can severely impact your credit score. Making sure you meet all your payment deadlines is the first step towards credit score improvement.

Mind your credit limits: Spending within your credit limits shows that you are responsible with your credit and can manage your finances effectively.

Wise use of available funds: How you utilise the funds you have access to plays a significant role in your credit score. Aim for a balance between using credit and maintaining a healthy savings account.

Each of these steps contributes towards a healthier credit score, making you a more attractive borrower to potential lenders. If your credit record is undefined due to past credit history or no credit history, a solution is to go down to a bank branch to get small credit card line against a fixed deposit. Building back your credit score will take at least 6 months but will be worthwhile given the cost savings through future lower interest loans.


The Bottom Line

Securing a business loan when faced with obstacles such as a lack of collateral or a poor credit score might seem challenging. However, rest assured that there are indeed pathways open to you. The key is to explore various loan types and find the one that aligns best with your specific needs. It's entirely possible to secure the right loan for you, regardless of your current credit score or asset holdings.

Lendingpot provides access to various business loans to suit your every need. Book a consultation with our financial experts for help finding the best loan for you. If you wish to begin your application, you can do so by clicking here

If you’d like to explore loans with potentially less stringent criteria and more flexibility, consider applying for personal loans. They can be an excellent solution when traditional business loans are not an option.

Leading digital loan marketplace Lendingpot connects SMEs to its network of 45 lenders comprising relationship managers from banks, financial institutions, and private and peer-to-peer lenders in Singapore. It aims to help SMEs overcome the information asymmetry problem and lack of transparency prevalent in the SME financing sector by offering SMEs financing options such as business term loans, property loans, revenue-based financing, credit lines, working capital loans, bridging loans, invoice financing, and more.

About the author

Lina heads up all things marketing and branding at Lendingpot. With a keen aesthetic eye, she believes in the use of design to communicate with our SME community and aspires to turn Lendingpot into a household name. Out of work, she is an avid camper and appreciator of nature’s best works.

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