4 Ideal Loans For Your Business That Don’t Require Deposit

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Apr 18 2019
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If your small business is cash-strapped having a loan will keep it afloat – ease its financial woes, even. However, if your business is not bringing in enough money or has cash flow problems, securing a loan with front money requirement could be strenuous and a financial burden.

Why? Because you will be required to provide a deposit first before you get a small loan. If a business owner could avoid securing a loan with a requirement for a deposit, the better.

If your business has cash flow issues and you’re looking to finance its operations, you are lucky! There are a handful of no money down small business loans you could take advantage of. And the best part? They won’t hurt your business’s cash flow.

But there’s one thing you should note when looking for a loan without a deposit requirement attached to it – every loan comes with a catch. Nothing is for free. Some loans require giving up collateral or security before you can secure the loan. Others come with high-interest rates and annual percentage rates (APR). Make sure to look out for this before signing on any dotted line.

If you’ve been in business long enough you will understand why a business owner would want to avoid paying a deposit while seeking a loan. It is costly. It adds to more financial stress in the long run. And that is not what you want as a borrower – more debts. That said, there is a handful of no money down loans to choose from that align with your financial goals.

But first …


Why Do Lenders Ask for A Deposit on Loans?

One thing you should know is, not all loans require down payment before being given out to a borrower. Only a few come with such requirements. But most of the lenders who ask for a down payment before handing out a loan often don’t have a choice.

The nature of the loans they give out is too large such as commercial real estate loans and small administration loans (SBA) hence their asking for deposit as security.

So, it is only obvious that a lender covers the risk on their part by asking for a deposit upfront. If you come to think of it, it makes a lot of sense because the more money you give out to a borrower, the higher the chances of them not paying it off on time.

The deposit in a way mitigate the risks for the lender or the lending institution in the event that a borrower defaults. The down payment ensures that a borrower is committed to financing their debt till the end. If a lender feels you have a lot to lose by what they hold, ostensibly they believe you are more likely to pay off the loan to get back the deposit.

Mortgage Loan Approved

Do Smaller Loans Require Down Payment as Well?

Not at all. If your business only requires a small amount of money to finance its operations, then some loan options do not require down payment. This does not remove the fact that getting realistic loans without a deposit is any easier – it is not because lenders want to protect their interests. So deposit will always be a pre-requisite.

However not on instances where a lender deems you worth of repaying the loan. To such borrowers, lending institutions approve their loans with much confidence. They believe they are capable of paying off the loan with no issues.

Also, a lender will only approve or offer a loan that they feel you can afford to repay back including interest rates, loan fees, etc. If a lender considers you a high-risk borrower, chances are they will impose a high-interest rate on your loan (if they will not ask for a down payment).


Best Loans for Your Small Business with Zero Deposit Needed

1) Term loans

The lending market is awash with term loans. They are common and as a borrower, you don’t need to pay any down payment for them. It explains why they’re widespread.

There’s a likelihood you will be required to give up collateral as security before a lender offers you a term loan for your business. And not just any kind of collateral but one specifically required by the lending institution. This can prove a hindrance if you don’t have what they want to see. Luckily, they often ask for a personal guarantee or a general claim on a property.

Alongside collateral, you may also be required by a lending institution to provide loan fees upfront. Often these are costs for processing your loan so it’s a one-time fee that you don’t need to pay again. But you must know this will generally depend with the lender or the lending institution you approach for a small business loan.


2) Business line of credit

If you’re trying to save your business from sinking due to cash-flow issues, it is important to seek a loan without any down payment costs. A business line of credit is one of those loans that will help your business remain afloat regardless of its diminishing cash reserves.

Here’s how this type of loan work: a lender offers you the required amount of capital you need to run your business in whatever you deem fit. These amounts are heavily dependent on the credentials of your business and its operations.

Once you repay whatever amount of money you’ve used including the interest, your line of credit replenishes back again to its original amount. A business line of credit loan is almost similar to a business credit card.

Point to note: business line of credit loans come into two forms – secured loans and unsecured loans. Choose what suits your business best. The latter financing option attracts high-interest rates compared to its former counterpart.

Small Business Loan - Application

3) Invoice financing

A business requires a steady flow of cash to remain in operation. Sometimes, due to one reason or the other, a business’s cash flow can remain stagnant. To free up this money you require invoice financing loan option.

This type of financing helps you release the cash by selling the unpaid invoices to a lender. The lender will then offer you money upfront often 85% value contained in a given invoice. The remaining 15% is the charge fees for the loan. Once your customers fulfill the invoice payment you will receive 15% of your cash.

It’s important to note that this financing option only works for businesses or companies that pay or employ the use of invoices as payment on their customers. So, most invoice financing lenders or lending institutions serve business-to-business companies, also known as B2B.

If you have a business the lender is more likely want to know how reliable and profitable is your customers before they can lend you money. No down payment is required instead all they care about are your customers – will they fulfill their part of payments? Can they make timely payments? Lenders don’t care about your business profile.


4) Equipment loans

Sometimes equipment loans may require a borrower to provide a deposit. This will depend on the lender you are working with, however.

Picture this: You want to purchase a piece of equipment and you don’t have enough money. You approach a lender who often is an equipment financing institution. They go through your quote and if they approve it, they will lend you 100% of the cash needed for the equipment. The lender will then use the equipment as security in case you default on the payments.

It is easily the best financing option you can get without a down payment. It is also less risky for the lender as they are guaranteed on reconciling their debt in case you default on payments as a business. It explains why it is easier for borrowers to get approved for equipment loans for their business than any other type of loan.

There are many other business loans you can secure without down payment including SBA microloans and no-fee business credit card loans. However, if you’re considering looking for a business loan without having a deposit requirement attached to it, make sure to consider term loans, business line of credit, invoice financing, and even equipment loans.

While a lender may ask for a deposit as a requirement, it is important to know that this is just one requirement for securing a loan for your business. Lenders will impose different methods and ways to better vet your chances of getting a loan. If you can afford to repay back the amount borrowed, then that is the preferred loan for you. If you can pay for it then you can afford it.

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Why don’t you tell the truth? Under the Fractional Reserve Banking System, with a deposit of RM X by the SMI party, the bank can lend RM 10X to 20X to other customers. Part of this is lent to the SMI making a deposit. The Bank makes money on the rest. And the bank makes you think it is doing you a big favour.

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