Unsecured Business Loans

Financing is the backbone of every successful business. And, that’s where the line between the big boys in the game and the beginners are drawn. Both are chasing for the bag, but with different approaches.

You need this money to finance almost every part of the operations. Acquiring a new asset, paying rent, paying employee salaries, expanding – all these require funds. They eat into your capital, especially if your business isn’t well-established.

So, where do you get the money? There are multiple sources. One of the most common is business loans. These have been helping especially small businesses access operation and expansion costs.

This can be a challenge for start-ups and businesses without collateral. Most financial institutions wouldn’t touch them with a 10-foot pole. In this article, we explore unsecured business loans and point you to the

Max amount
Min Credit Score

Best

Fundbox

$100,000
Undisclosed

$5 million
Undisclosed

$5 million
530

APR range
Fees
Terms
Amounth
Unemployment protection

Best

Bank 1

6.95%–35.89%
Up to 5% transfer fee
3–5 years
$1,000–$40,000
No

6.95%–35.89%
Up to 5% transfer fee
3–5 years
$1,000–$40,000
No

6.95%–35.89%
Up to 5% transfer fee
3–5 years
$1,000–$40,000
No

What is an unsecured business loan?

Most lenders don’t easily offer loans to borrowers with no collateral. That locks out most businesses – especially start-ups and small businesses. However, there are still other lenders ready to cut them the slack.

That’s where unsecured business loans come in. These loans don’t have to be secured with any specific collateral (or any collateral for that matter). These are viable options for most businesses.

In a nutshell – unsecured business loans are loans that don’t require any collateral from the borrower (business or business owner). Instead, the decision of whether or not to issue the loan lies solely on the creditworthiness of the principal applicant.

Make-no-mistake, though – not every applicant has a good credit standing. And, it gets even more complicated when you neither have a property to offer as collateral nor a good credit standing.

However, for unsecured business loans, you only need to find the right financial institution to look at your case from a different perspective. The lenders above are the perfect example ‘of such. They’re willing to take a chance on you and your business.

Lenders also use your annual revenue in place of collateral. They’ll use this to evaluate if your business makes enough to sustain the loan repayment. This makes it harder for start-up businesses.

You should also be prepared to pay higher interest rates than you would for a normal secured business loan. Most of these loans also tend to have difficult loan terms because of the higher lender risk.

Hot Tip:

These loans also tend to have difficult loan terms because of the higher lender risk.

Requirements to qualify

Requirements to qualify for unsecured business loans differ from one lender to another. However, as required by general lending laws, the applicant should be a legal resident of the United States. Here are a few things you should check out for;

Collateral – you don’t need collateral when applying for unsecured business loans. while this makes it risky to the lender who doesn’t have any leverage against you, it is low-risk to you. You don’t risk losing your house, vehicle, land, or any property you’d have used as collateral
Annual revenue – most lenders will need to look at your business’s annual revenue, mostly for the last two years. You can use this especially if you don’t have a good credit standing. However, this makes it unsuitable for start-up businesses.
Business ownership – the principal applicant should be the sole owner, or at least own 50% of the business. The lender may require your share-holder or registration certificate
Verification documents – most lenders have capped their age requirement at 18 years. To verify this, plus your identity, the lender will need a copy of your ID, valid driving license, or travel passport

Finding a good lender is a process. While we have suitable options to explore on the table above, it would be wise to take time and familiarize yourself with their respective policies before you sign up with any of them.

Ask for clarification where you don’t understand, and, if there’s room for negotiations, take up that chance and request for amendments of certain policies. Or, better still, find another lender.

Differences Between Secured and Unsecured Business Loans

Secured	Unsecured
Requires collateral	Doesn’t need collateral
No credit requirement	Strict credit requirements
Lower interest rates	Higher interest rates

Types of Unsecured Business Loanss

Need a loan for your business? Filling some cash gap and you don’t have collateral? You can tap on any of the following unsecured business loans options. Again, these are the products of the lenders we tabled earlier;

1. Business Line of Credit

This is a type of revolving credit that works the same way as a credit card. Businesses can use this as a source of funding whenever they need funds or making purchases or for any other uses. Should a business opt for this, they’re obligated to pay principal and interests.

Please note that the business line of credit isn’t open-ended forever you’ll be renewing it annually or semi-annually, depending on the lender in question. You’ll be assigned a specific limit you can’t exceed without the lender’s express approval.

Business lines of credit are known for their flexible terms and low-interest rates, at least lower than most term loans. You can use the funds for business expansion, you can use it as working capital or fill the possible cash flow gaps in your business.

2. Business Cash Advance

This type of financing allows you to borrow loans against future sales. The funds come in a lump sum, and you’ll repay it within a specific agreed-upon time. You’ll repay a specified amount, usually higher than the cash advance you received.

Just to confirm your fears, you won’t need any collateral or personal guarantee when applying for this. They are your best shot at taking care of business cash flow shortages.

Because cash advances aren’t loans, there are no specific time limits attached to these. You’ll continue with repayments till all the owed amount is fully repaid. You’ll agree with the financer on the collection percentage based on the revenues.

Please note that the ‘fixed’ payback percentage is subject to constant changes due to the ever-changing revenue.

3. Merchant Cash Advances

Though risky, merchant cash advances are one of the most common sources of unsecured business financing. Here, you take the financing against a percentage of your future anticipated sales.

You’ll pay back the advance amount, any fees as required by the financer, and a percentage of your credit and debit card sales or weekly bank transfers.

However, on the flip side, cash advances attract interest rates in triple digits. This makes them among the riskiest sources of unsecured business loans.

4. Business Credit Cards

Business credit cards are pretty similar to personal credit cards. Both are revolving lines of credit. They both have limits you can’t surpass and monthly minimum repayment requirements. This is usually lower than that of a typical business loan.

The payable interest here is dependent on your current principal. The loan is an excellent option if you’re looking to bridge the cash-flow gap in your business.

5. Invoice Financing

This type of financing basically involves selling your unpaid invoice to a suitable financer for an agreed commission. This is an excellent place to look especially for businesses struggling to meet their cash flow needs because of delayed invoice payment.

Most lenders will buy your unpaid invoices at about 80% of the actual value. The lender will then follow up on the invoice payments from the customers in question.

While this is an easy-to-secure financing option, please note, however, that invoice financing attracts very high costs which easily accumulate. That makes it even riskier for small businesses.

How much can you borrow?

You can borrow up to $5 million with unsecured business loans. The table above has some of the best lenders you’ll find around today. Check out their policies, rates, and loan terms, and pick the one that conforms with your business’s financial needs.

Since we are talking about unsecured business loans, your creditworthiness is what will determine how much you’ll be able to borrow, or if you’ll be able to borrow in the first place.

Your potential lender will make a decision based on your past behavior with your previous lenders. Those with credit scores above 600 have a better shot at higher loan limits, lower interests, and flexible repayment terms.

Having a good standing with the financer will also give you an upper hand.

Hot Tip:

Your creditworthiness is what will determine how much you’ll be able to borrow.

Where to Get Unsecured Business Loans

Looking for unsecured business loans? Let’s narrow down the search for you. Here are a few options you could consider;

Banks – Banks are the most common source of business loans. They are swift, have lower interest rates and flexible repayment terms. However, they hardly give out loans without any assets as collateral. This locks out most businesses, especially start-ups. For those without collateral, strong financial reports including transaction statements, annual sales reports, and strong credit profiles come in handy here. However, you’ll probably pay higher interest rates.
Credit Unions – credit unions are known to be easier financial institutions to deal with. They mostly offer business lines of credit and term loans. Approval for an unsecured business loan here will depend on your financial standing with them. Existing customers here have exciting loan products. They are also known for lower interests and flexible repayment terms.
Online lenders – these are mostly financial technology firms that have special technology they use to determine who the potential borrower is. Their processing time is fast and they have a less strict application process and they have no impact on your credit score. However, they tend to attract higher interest rates and unfavorable loan terms.

Pros and cons

Pros	Cons
Less risky to the borrower	Higher interest rates
Good for businesses with no assets	High credit requirements
Quicker approval	Shorter repayment terms
Easy to apply

Frequently Asked Questions (FAQ)

What are unsecured business loans?

It’s a form of business financing that does not require you to offer any collateral to act as security.

How do unsecured business loans work?

Unsecured business loans work the same way as other typical business loans. However, you are not required to offer any collateral, and your approval is based on your creditworthiness.

Where can I get unsecured business loans?

Banks and credit unions are the most common, and viable sources of unsecured business loans. Other alternative sources such as online lenders could work, too. The table above has some of the best sources. Check them out.

Should I go for an unsecured business loan?

That depends on a lot of factors. However, unsecured business loans are a good idea if you need a loan but have no collateral. This applies, especially to new businesses.

Which are the best types of unsecured business loans?

Business lines of credit, invoice financing, merchant financing are some of the common types. Check above for more.