Representatives of small businesses very often apply to bank organizations for loans, as they need additional funds. They can receive these funds simply by taking them out of circulation, but this is not profitable, since it will lead to a slowdown in the development of the enterprise and a decrease in revenues.
Since the business requires large amounts of loans, banking organizations, wanting to be safe, ask for some property as collateral. But not every representative of a small business has a valuable property that will be of interest to the lender or the business owner simply does not want to risk the available property. And then the question arises, is it possible to conclude a credit transaction without collateral?
Where to turn?
Representatives of small businesses are quite profitable borrowers who, following the next loan, almost always return to the same bank, that is, they become permanent borrowers. The best option is usually to appeal to the bank, which is engaged in financial services for the enterprise. In this case, the borrower may receive a deferment of the first payment, a favorable annual rate and some other benefits that will surely please. In any case, transactions of this kind carry a high risk for the lender, and therefore one should not expect to receive a large loan, without collateral.
Features of transactions without collateral
Business loans always start with a loan application. If the borrower immediately says that he/she does not have the property or does not want to use it as a collateral object, the specialists of the financial organization are more responsible in checking all the information specified in the loan application.
Since it is important for the lender to know that the funds will be received back with interest, he/she can ask the potential borrower for a plan according to which additional funds will lead to an increase in the company’s profits. From it, the borrower will repay his/her debt, but even in this case, the borrowed amount will be small. Unsecured business loans are not suitable for expanding production, real estate and equipment; they are a good option only for the purchase of raw materials or some goods.
It is not always that small businesses manage to negotiate with a financial institution and have to deal with the lack of funds by other means. One of these ways is to appeal to a private investor. This lending option has its advantages. If a supplier acts as a creditor, he can set a very small percentage, which will be equal only to the percentage of inflation. He/she can issue a loan not only with money, but also with products.
Such deals are also attractive for the reason that the borrower will not need to collect a huge amount of documents, as is necessary with standard bank lending. The agreement between such parties to a credit transaction is rarely signed, generally, a guarantee of repayment of funds to the lender is a receipt drawn up by the owner of the business for which the loan is taken.