But what if you really don’t have collateral for your loan? Well, as we mentioned above, most alternative lenders don’t care. They’re not looking for any specific collateral from borrowers, and they offer unsecured business loans.
You won’t get off quite scot-free, though. Because even though online lenders don’t demand specific types or value of collateral, pretty much all of them will ask for either a personal guarantee, a UCC lien, or both.
A personal guarantee basically means that you agree that you are personally liable for your loan. So if you default (stop making payments) on your loan, that liability means the lender can go after your personal assets (not just your business assets). Anything from your car to your house to money in your savings account to artwork is fair game.
A UCC lien (Uniform Commercial Code lien) is a blanket lien on your business assets. In other words, pretty much everything your business owns serves as collateral, but the actual value doesn’t matter. UCC liens are a little special because they give your lender first priority on your assets over other lenders.
If either of those definitions makes you feel panicky, we get it. But it’s okay. If you repay your loan on schedule, you don’t need to worry about a personal guarantee or a UCC lien. Just make proper payments, and your stuff is safe.
Plus, we want to point out that personal guarantees and UCC liens have actually been a good thing for a lot of business owners. Without them, a borrower who doesn’t have enough collateral would probably just get turned down for business financing. With them, more business owners can qualify for the loans they need. That’s good news, as far as we’re concerned.
Most of the lenders on our list of the best small-business loans offer unsecured loans that don’t require specific collateral.
But if you’re interested in unsecured loans that require only a personal guarantee (and not a UCC lien), check out our rankings of the best unsecured business loans.