Unsecured Business Loans with Bad Credit
Being a business owner can be an exciting experience. But, it is also challenging and at times stressful. Many people that look into getting funding for their new or established businesses find that banks do not want to lend money to them.
That mostly boils down to one thing – bad credit or no credit.
Banks in general will only lend funds on business endeavors if the individual already has a proven track record in business. For those who have no track record or poor credit, there are other options to look into for funding a start-up business.
One option is to look into getting an unsecured business loan. These types of loans are offered by many lenders, but they do not require any type of collateral or credit check; therefore, it makes it perfect for those who have no track record or poor credit.
In this article, we’ll guide you into getting unsecured business loans with bad credit. First, we start with the top lenders.
- Est APR
- Min Credit Score
BlueVine
- 15.00 - 78.00%
- 600
OnDeck
- 11.00 - 61.90%
- 600
BlueVine
- 15.00 - 68.00%
- 530
- APR range
- Fees
- Terms
- Amounth
- Unemployment protection
Bank 1
- 6.95%–35.89%
- Up to 5% transfer fee
- 3–5 years
- $1,000–$40,000
- No
Bank 2
- 6.95%–35.89%
- Up to 5% transfer fee
- 3–5 years
- $1,000–$40,000
- No
Bank 3
- 6.95%–35.89%
- Up to 5% transfer fee
- 3–5 years
- $1,000–$40,000
- No
Table of Contents
What is a Unsecured Business Loan?
Unsecured business loans are available for people with little or no credit. It is a great option for startups where you don’t have any existing credit history to show your ability to repay the debt.
These loans can be used by young entrepreneurs who are just starting out in the business world. Unsecured business loans can be much easier to obtain than a standard loan because they are not secured by collateral (assets).
Therefore, if you default on your payments, the lender doesn’t have any property or assets that can be used to collect payment from you. This differs from a home mortgage loan or car loan where the lender can repossess the collateral item if you fail to make payments.
Unsecured business loans are not credit-based meaning you do not have to show a history of good credit to qualify for them as with other types of loan products such as home mortgages and car loans.
Therefore, even those individuals who have poor credit or no credit can obtain an unsecured business loan.
Unsecured business loans work best for individuals that have a steady stream of income and the ability to repay the debt.
For example, if you are self-employed or own your own company, this can be a great option to borrow money at competitive rates to pursue opportunities with your new business.
These loans can be used by young entrepreneurs who are just starting out in the business world.
Can I get an unsecured business loan with bad credit?
Getting a small business loan can be pretty challenging unless you have collateral to secure the loan. But if you don’t have this type of asset, then it quickly becomes very difficult.
You will need to show that you are an established entrepreneur, that the business has a great track record, and that it can pay back the loan.
However, you can get an Unsecured Business Loan even with bad credit. There are a few ways to obtain this type of loan:
You can approach your bank if you have a good relationship with the institution and see their best programs available.
Since unsecured business loans are not backed by any type of collateral, they are considered high risk and thus are often only available to those with strong credit or a history of repaying debt.
A second option is to apply through a financial services company that specializes in providing small business loans, such as OnDeck, Bluevine, and Fundbox.
They may have different lending criteria then your bank but they will be more willing to work with you if they see value in your business idea.
Finally, be sure to check out your local credit union for any loan products that may fit your needs.
For example, many large credit unions now offer unsecured business loans through their service companies or a third-party financial services company such as OnDeck.
Requirements
To qualify for an unsecured business loan you need to have the following:
- A personal credit score of at least 500 – A personal credit score of 500 or higher is a great place to start when applying for business loans. It shows that you can handle your debt, although it doesn’t necessarily show how responsible and efficient you are with managing your debt.
- An established business – It’s important to have a few years of successful financial history. Without that, you could find yourself having problems getting approved for an unsecured business loan with bad credit.
- A strong and diversified income – You need to be able to show that your business is making enough money for the interest that you’ll be paying.
- Stable financials – Because of the high-risk nature of unsecured business loans with bad credit, they tend to have a higher rate than other loan products. You need to show that your business is stable enough to pay off the debt promptly.
Please note that these requirements will probably differ from one financial institution to another. Still, they meet at common grounds when it comes to the legal US resident and majority age (usually 18 years and above) requirements.
Differences between secured and unsecured business loans
| Unsecured | Secured |
|---|---|
|
Requires no collateral |
Requires Collateral |
|
Interest rates |
Interest Rates |
|
Unsecured Business Loans Provide Flexibility |
|
Types of unsecured business loans
There are several different types of business loans with different interest rates and terms. Some require collateral, others don’t. Unsecured business loan types include:
- Term loans – This is one of the most common types of unsecured business loans that you will find. It’s typically structured as a fixed repayment term loan. It usually has a maturity of one to seven years and it’s more expensive than the other types listed below
- Merchant cash advance – Here, you are essentially getting an advance on future credit card payments that your business will receive for accepting credit cards as a form of payment.
- Bridge loan – A bridge loan is short-term financing that gets you past a certain financial roadblock. It’s often used to repair broken equipment, handle cash flow problems or cover emergency expenses. You can typically get a bridge loan for up to 12 months, although some lenders offer them for longer periods.
- Line of credit – A line of credit is similar to a bridge loan in that it provides you with short-term financing. The difference is that a line of credit has no set expiration date and can be used time and time again when needed.
- Working capital lines of credit – These lines of credit are often tied directly to your business’s bank account so you can borrow money on an as-needed basis. These are usually available for up to 12 months and they help businesses receive the cash they need in a hurry.
- Merchant services financing – This type of financing is offered through your credit card processor or merchant service provider. It essentially allows you to finance the transaction fees that you pay each month to the processor or merchant services provider. In many cases, the financing helps businesses get started by letting them create a certain amount of credit card sales volume.
Pros and cons
| Pros | Cons |
|---|---|
|
You don't have to risk losing your assets since you won’t have to offer any as collateral |
You don't have collateral backing up your loan, so the chances are higher than you can default on payments |
|
Lower interest rates |
The penalties for a late or missed payment are more severe than those for secured loans will be much higher if you cannot make your scheduled payments |
|
Unsecured business loans are easier to get than secured ones |
If you do default on your payments, the lender can seize your property to recover their loans. This means that they could take ownership of a business or vehicle that is pledged as collateral for the loan |
|
Less stringent requirements than a loan from a bank |
|
|
A variety of terms, interest rates, and repayment schedules to choose from |
|
|
Lenders do not have to pay for the cost of foreclosing on any property or equipment or selling the property after foreclosure |
|
There are several different types of business loans with different interest rates and terms.
Where to get unsecured small business loans with bad credit
The good news is that even if you don’t have great credit, it’s possible to get an unsecured business loan. The trick is to find a lender who is willing to help you out. Here are several places where you can go for unsecured business loans with bad credit:
- Online lenders – Some online lending platforms can help you find an unsecured business loan even if your credit is bad.
- Government-backed loans – These are small business loans that have been guaranteed by a government agency, such as the Small Business Administration (SBA). The SBA does not actually offer the loans directly but it works with banks and other approved lenders to provide financing to eligible small businesses.
- Alternative lending – Businesses that require financing, but have bad credit can often turn to alternative lenders. These companies specialize in providing cash advances and other types of loans to small businesses. They typically offer very competitive rates because they don’t have the expense of traditional brick-and-mortar branch locations.
- Peer-to-peer lending – This is a newer form of financing that has become more popular in recent years. It involves lending money through an online platform, which matches lenders and borrowers from around the world. The rates are often higher than bank loans but lower than alternative lender rates.
- Friends and family – You can always ask friends and family for a loan. It’s worth noting that putting up your home or other assets as collateral should be your last resort.
- Traditional bank loans – Many businesses try to get bank loans first because they offer more stability and security than unsecured business loans. But, if you have bad credit, banks are less likely to work with you.
Frequently Asked Questions (FAQ)
f you can afford to repay it yourself, an unsecured loan is a great way to finance your business. Even if you fail and the business folds, the lender would not be able to take anything from you personally as long as you haven’t guaranteed the loan with your personal property.
There are many ways to improve your current credit score. It’s important to keep in mind that some of these strategies will also help you build a better business reputation. That includes repaying your existing debts, paying your bills on time, avoiding additional loans, and correcting any possible errors on your credit reports.
If you can’t get an unsecured business loan, many lenders will require that you personally guarantee it. This means that if things don’t work out, the lender can go after your personal assets. If you decide to do this, be careful not to accept a personal guarantee for more than you can afford to pay.
Most unsecured business loans are approved within 48 hours of application, and they can be funded as quickly as within 7 days. This means that it’s best not to get hung up on the details of your loan until you have received approval. Then you can go back and negotiate a better interest rate, repayment terms, etc.
If you want to apply for money, first establish the amount that you need. Then choose among the top lenders listed above and apply.
