Blog | Business Advice

How To Secure Working Capital Without Business Collateral

By Johann S


July 20, 2023

Business funding is a bit of a Catch-22. SMEs need funding to purchase assets and grow the business, but most funding institutions require business collateral (i.e. assets) to secure a loan. In short: in order to procure assets, you need to pledge assets.  

When your business is more established, this is less of a problem. But when you’re a small to medium-sized business, it’s unlikely that you have any assets lying around that would qualify as business collateral. So, what’s an SME to do? 

That’s where alternative finance comes in. 

South Africa is home to a rapidly growing alternative finance sector, which has sprung up in response to the challenges facing SMEs described above. The local economy is powered by small businesses, but SMEs often struggle to secure working capital from traditional financial institutions without collateral. In this article, we’ll guide you through your alternative financing options. Spoiler alert: it is entirely possible to secure working capital without collateral. 

What is business collateral, and why do I need it for a business loan? 

Business collateral is essentially any asset that a borrower pledges against a debt in order to secure a loan. Most traditional business loans require collateral to disburse funding. Typically, traditional financing institutions view assets such as real estate, equipment, and business inventory as collateral. This is known as a secured loan. 

The point of pledging collateral assets is so that, in the (hopefully unlikely) event that the borrower cannot make repayments on the loan amount, the lender can claim ownership of the collateral to recoup their losses. Assets like vehicles or inventory can be liquidated to cover the cost of the loan to the lender. 

However, if the borrower does not own anything of value or is unable or unwilling to put those business assets on the line, then it’s unlikely that you’ll qualify for a secured loan. Fortunately, you’ve got other options available to you – including unsecured loans and self-secured loans. 

How unsecured loans help SMEs access funding without pledging business collateral 

The term “unsecured loan” sounds a lot worse than it is. Rest assured, unsecured loans are no less secure than traditional kinds of business funding. “Unsecured” doesn’t mean “not secure” – it simply means that the conditions of the business funding are not tied (or secured) to any collateral assets. In short, unsecured loans are best suited to SMEs that need working capital but don’t have any assets that they can offer as business collateral.

These kinds of loans help SMEs make large purchases and take advantage of growth opportunities while also covering the cost of operation. For example, Bridgement’s business loan can be disbursed as a lump sum to make a specific purchase or to manage cash flow.

Other types of business loans – like a business line of credit or invoice financing – help SMEs access cash more quickly on an as-needed basis. If this sounds like something that your business would benefit from, then you’re looking at getting a self-secured loan. A self-secured loan is a type of secured loan where the asset being financed is also the collateral for the loan. For instance, Bridgement’s Invoice Financing service works by pledging the value of your unpaid invoices as the collateral for the loan used to pay the unpaid invoices. It’s a bit of a thinker, we know. We’ve simplified it in another blog on invoice financing which you can read here

Using a self-securing financial product like invoice financing is suitable for SMEs that don’t have many assets to pledge as business collateral. The trick is to find a financier that can accurately assess the value of an SME’s assets in order to release business funding. After all, it’s not as if SMEs have nothing to offer in the way of assets. In invoice financing, for example, the accounts receivable is the asset that is being pledged. Many traditional financial institutions don’t see it that way, but alternative funders look at your data differently. 

Bridgement understands that small businesses benefit from an assessment of the small print 

As we’ve said before, it’s not as if SMEs don’t have any assets to offer in exchange for a business loan. However, most traditional financing institutions have a limited view of what kinds of assets qualify as business collateral. Alternatively, they require a much longer or more detailed financial or trading history than most SMEs can provide. 

One of the distinct advantages of applying for funding through Bridgement is that the process does not require any business collateral. That’s because, as a funding partner that works very closely with SMEs and possesses a unique understanding of their needs, Bridgement looks at what qualifies as an asset differently from most conventional lenders. We’ve taken all the best aspects of traditional business funding and made them faster and simpler. 

Applying for business funding from Bridgement takes just two minutes online. You don’t have to submit a multi-page application pack including a detailed business plan, company registration, and months of financial documents. Instead, Bridgement assesses your financial data through your accounting software (or through the submission of PDFs), which allows us to reach a decision in 24 hours or less. 

This means that, in the space of one day, your business could access up to R5 million in business funding without pledging any business collateral. 

No application fee. No lengthy paperwork. No business collateral required. Just fast and flexible business funding, simple as that. Apply for your Bridgement facility today. 


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