Unsecured Small Business Loans

Jason Smith

Jason Smith

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Jason Smith

Senior Author

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If you own a small business, or you’re thinking of starting one, you probably spend a lot of time wondering what your best finance options are. If you have a relatively young business, or a checkered credit history, many lenders will want you to secure your loan. This means that you’ll have to provide assets or other forms of capital to the lender as collateral – if you default on your loan they will have the rights to liquidate your collateral to help fund paying back what you owe them. Many traditional small business loans operate under this structure – lenders want to know that if your business fails they’ll still have a solid chance of getting their money back.

But many small business owners don’t want to secure their loans. It offers banks a way to shut down your business or seize certain assets – many feel this results in too much control over an individual’s livelihood. This can be especially true if an individual has signed over personal assets – it can be a huge risk to put your family’s well-being on the line in order to secure a loan with a lender.

So, what should you do if you need capital but don’t want to secure it against assets or personal items? There are a few different options available to you and one of the most popular of these is an unsecured business loan. It may sound too good to be true, but there are various different ways that you can attain an unsecured small business loan to help you start or invest in your business.

This article is a guide on how to get finance for your small business if you don’t want to secure your loan. Make sure to take in all the information so you have a true understanding if this is best possible financing option available for your business.

Contents

Unsecured Business Loans: The Details

Unsecured Small Business LoansBeing able to obtain an unsecured business loan will depend on your financial viability and credit history. Those with extremely high credit scores may find it quite easy to get an unsecured business loan. Many lenders provide unsecured small business loans, but the terms at which they come vary drastically from lender to lender. There are traditional banks that provide unsecured small business loans, but these lenders will have higher qualification requirements than many other providers – but they also tend to have the lowest interest rates. If you want to get unsecured small business loans from one of these lenders, you will need to have a clean track record and a solid business plan. If you are a startup, you may find it hard to get an unsecured small business startup loans since your business most likely has a fairly risky business model.

The Process

There are two primary ways that individuals try and get unsecured business loans. The first is through commercial lenders that provide a range of different financial products. It is best to head into their offices and ask to speak to a lending specialist about the different unsecured lending products they offer. If you’re ineligible for an unsecured loan, there may be other lending products they can offer that suit your needs without securing.

While many people still tend to go to traditional lenders in search of unsecured loans, the modern world has allowed for individuals to obtain unsecured loans directly online. There are now a number of very well-known online lenders that provide finance to clients who don’t want to have to go through the arduous process of applying at a brick-and-mortar bank. These online lenders also tend to have much lower requirement for receiving finance than traditional lenders do – the only downside is that they also have much higher interest rates. If you’re looking for fast, unsecured business loans, this is typically your best option. In truth, unsecured small business loans for startups almost don’t exist unless you’re willing to pay extortionate interest rates that will take away the viability of the loan.

Unsecured Business Loans Reviews

One of the most important parts about determining who to get an unsecured loan is ensuring that your lender is credible. You may find that large commercial banks have at trusted name, but many of the largest lenders in the country have horrible reputations with their client bases. Fortunately, the internet has made it very easy to find information about lenders and their customer relations. Head online and compare and contrast your favorite lenders. If you feel that a lender is offering you a good deal, but that he has horrible reviews from past clients, make sure to steer clear. You can’t underestimate how bad an experience can be if you use a lender with a bad reputation.

Advantages of Unsecured Small Business Loans

There are many advantages in getting an unsecured small business loan. Some of the primary benefits of getting unsecured small business loans are provided below:

  • Low Risk – For the borrower, unsecured lending is substantially lower risk than secured lending. This simply comes down to the fact that borrowers aren’t risking losing assets or personal items in order to secure their loans. In addition, your business won’t be at risk of closing down should you fail to pay back your loan. This is in stark contrast to secured loans which will be able to claim certain components of your business should you default.
  • Choice of Lenders – While many large lenders offer unsecured loans, there are also many online entrants to the market. This means you have plenty of lenders to choose from if you’re trying to obtain a small business loan. Make sure that you use this to your advantage – never accept the first lending opportunity that you are given.
  • Short Payment Terms – Many unsecured loans have short payment terms, which is good for individuals who want to get out of debt quickly. This may mean that payments are larger, but it forces your business to operate more efficiently in order to meet debt requirements.

Disadvantages of Unsecured Small Business Loans

Depending on the type of business environment you operate in, there are also some disadvantages in attaining small business loans – these drawbacks are worth considering prior to taking out a similar loan. A list of the top disadvantages associated with unsecured loans is provided below:

  • High Interest – The primary disadvantage in getting an unsecured loan is high interest rates. Because lenders have no way of getting their money back should you default, they must compensate themselves for the risk in some other way. This is especially true for unsecured small business loans bad credit.
  • Qualification – Because unsecured small business loans don’t have any collateral attached to them, it is much harder to qualify for them – especially if you want one from a commercial lender. You will most likely need to have a great credit score, as well as enough information to exhibit a viable business plan.
  • Large Payments – Lenders are eager to get their money back quickly, and the short payment period may be seen as an advantage. But this also means that your payments are much larger, which creates problems for many small business owners who are trying to meet requirements. Not making these payments on time will have a terrible impact on your business credit score.

Secured vs Unsecured Business Loans

One of the most important thing to understand about a business loan is the difference between an unsecured and secured business loan. This difference can make or break a new business, as each type of loan can affect how much capital you have to operate.

Unsecured Business Loans

An unsecured business loan is a loan made to a business without any kind of collateral. That means the lender believes the business will be able to repay the loan with a degree of certainty that they don’t require any kind of collateral. This is the best type of business loan to get. The fact that the loan doesn’t require collateral lowers the risk to you and your business while also increasing the amount of capital you have access to so you can operate and grow your business. However, it can be hard for most small businesses to get an unsecured loan. That means most businesses get secured loans.

One thing that’s important to remember is that, in most cases, lenders won’t be willing to issue large unsecured loans. The maximum for an unsecured loan is going to be about $50,000 in most cases. Also, many lenders have additional requirements for unsecured loans, such as a minimum time operating and minimum earnings or revenue. These elements are needed to prove that a business will be able to pay an unsecured loan.

Secured Business Loans

A secured business loan is a loan that you get while offering the bank something valuable in return that the bank can take and/or sell to recover your loan if you default. This lowers the risk to the bank and increases the risk to yourself and your business.

That doesn’t mean that businesses should avoid secured loans. In fact, a secured loan is often the best way for a business to get the liquid capital it needs to expand and grow. That’s because lenders are willing to accept many different types of assets as collateral. The important thing is that the collateral you’re offering comes near to the total value of the loan you’re requesting.

For example, if a small business owns the land it is situated upon, then the business can use that real estate as collateral for a loan. The business gets the liquid cash needed to fund and expand operations. The bank gets loan payments. Should disaster strike and the business default on the loan, then the bank can take the deed to the land used as collateral to recoup the loss of the loan.

Lots of different things can be used for collateral for different kinds of business loans. Land, personal property, ownership stakes in the business itself, account receivables, machinery, and any other valuable asset.

Another advantage of a secured loan is that you can usually get better terms from the lender. That’s because a secured loan is less of a risk for the lender. As a result, they can take a smaller profit on interest. That means more savings for you and your business.

Other Forms of Unsecured Borrowing

If you don’t think that unsecured business loans are the right fit for your business, but you don’t want to risk securing your business loan, there are other forms of unsecured debt that may be of use to you or your company. Most of these lending products come in the form of revolving credit – which happens to be the most popular form of unsecured debt on earth. Business lines of credit and business credit cards are two examples of revolving credit that are commonly used by businesses in the United States. More information on these forms of unsecured debt is provided below:

Business Line of Credit

A business line of credit is a good option for those who want unsecured debt without getting a traditional unsecured business loan. A business line of credit is an amount of capital that is extended to you by a lender, you are then allowed to borrow up to the limit that the lender sets. One of the best aspects of business lines of credit is that you don’t pay any interest on the money that you don’t borrow – this is why it is called ‘revolving’ credit. In addition, most lines of credit are unsecured, so while the interest rate on the debt, the risk of losing assets is low. You can also access cash from your line of credit at no additional charge.

Business Credit Cards

Business credit cards are similar to a line of credit in that you don’t have to pay interest on the money that you don’t access. You can also give business credit cards to staff in order to pay for company expenses – this is part of the reason they are such a popular option for many business owners. In addition, they provide you with a card facility to help you pay for items that accept credit cards as payment. Like any form of revolving credit, business credit cards typically come with much higher interest rates than traditional loans – though this is not too much higher than what you would find with many forms of unsecured debt.

It is also important to note that if your business need access to cash on a regular basis, this is not the best option for you. Many credit card issuers charge extremely high fees and charges if you withdraw cash on their cards – cash advances are one of the most unaffordable ways to get cash for your business.

Tips and Tricks

If you do decide that small business loans are a good fit for your business, you should make sure to put yourself in the best position possible to get yourself the deal you need. If you have decent credit, you should opt primarily for lenders that are well established in the industry – commercial lenders have higher requirements but also have better interest rates than many online lenders.

If you do have a bad credit history, don’t let it deter you from applying for unsecured business loans. If you have a large amount of cash flow, meeting the inflated payments may not be an issue for your company. This is especially true if you believe the investment you will be able to input from your financing will have a positive impact on the efficiency of your business.

Another tip that you should follow if you’d like to ensure you’re fully aware of your responsibilities is to ask for a full break down of the costs of your loan. Many lenders will provide you with an interest rate and a principal loan amount, but this may not be the full picture of your liability. If you ask your lender for a full breakdown that includes a total cost of the loan, you’ll have a better idea about how it stacks up to competing loans.

Lastly, never accept your first offer. The key to finding the right finance is to compare and contrast different offers from different lenders. As mentioned previously, include their customer satisfaction record in this comparison. Also, don’t be afraid to tell a lender that you’re comparing their quotes to other financiers – this may make them more competitive with what they offer.

Verdict

If you take in all the information in this article, you should have a good idea of how to get unsecured small business loans. Remember, the majority of unsecured loans are short term unsecured small business loans – make sure this is an appropriate funding model for your business. Unsecured business loan lenders will want to make sure that you are a viable candidate, if you want to secure a relatively low interest rate, make sure that you have all the information you need to convince them that you are a viable business owner.

In addition, it is often not worth getting an unsecured loan if your business is in good shape. If you know that you will be able to service your debt, there is not much point in paying additional interest to make your loan unsecured. This being said, it is definitely a way to reduce your risk – especially if your business doesn’t have enough assets to be able to provide substantial collateral.

FAQ

General Unsecured Business Loan Questions

This section covers the basics of unsecured business loans.

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How to get unsecured business loan?

The best way to get an unsecured business loan is to have a business plan that demonstrates to the lender that you’ll be able to use their loan to make enough profit to pay the loan back within the terms.

What is an unsecured business loan?

An unsecured business loan is a loan you get for a business that doesn’t have any collateral. That means the only party taking a risk is the lender.

How much can I get in a business unsecured loan?

There’s no law or limit on what you can get for an unsecured business loan, although every lender sets their own policies. You’ll need to check with specific lenders to get more information.

What is required to get an unsecured business loan?

You’ll need the name of your business, the name of the owner, the business credit information, and a plan that shows how you’ll be able to pay back the loan to get an unsecured business loan.

What is the maximum amount for an unsecured business loan?

Each lender puts their own policies in place for the loan minimum and maximums. In theory, there’s no upper limit to how much money you could get.

Why should I get an unsecured business loan?

You should get an unsecured business loan if you can use a fast injection of cash to grow your business in a way that lets you increase profits while paying back the loan.

How many unsecured business loans get approved?

Bank and lenders don’t publish information on how many unsecured business loans get approved each year, but estimates range from 1%-10%.

What’s the difference between secured and unsecured business loans?

The difference between a secured and unsecured business loan is whether or not you need to put some kind of collateral down to secure the loan and reduce the risk to the lender.

How long do I need to be in business to get an unsecured business loan?

Most lenders require 2-3 years of operations before they’ll consider you for an unsecured business loan. However, special circumstances may apply.

Why are unsecured business loans preferable to secured business loans?

Unsecured business loans are preferable to secured business loans because an unsecured business loan doesn’t put any business assets at risk.

How do unsecured business loans help a business grow?

Unsecured loans help a business grow by giving a business capital to expand without holding vital assets as collateral.

Can I have more than one unsecured business loan?

There’s no legal limit on the amount of unsecured business loans you can have, but lenders will be hesitant to lend to you if you have lots of loans already outstanding.

Sources of Unsecured Business Loans

We’ll answer the most popular questions people have about where to get unsecured business loans in this section.

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Where to get an unsecured business loan?

The most common sources of unsecured business loans are banks, online lenders, and business lenders that specialize in commercial lending.

What is unsecured business loan by American Express?

An unsecured business loan from American Express is a loan that you don’t need collateral to secure. That means you get money and pay it back according to terms with no assets of your own at risk.

What banks offer unsecured business loans?

Many banks offer unsecured business loans. Bank of America, Wells Fargo and more all offer unsecured business loans.

Are SBA loans unsecured business loans?

Depending on the setup you have with your lender, yes. Most SBA loans are unsecured business loans.

Does the government offer unsecured business loans?

The government offers unsecured business loan guarantees to banks and lenders through the Small Business Administration.

Can you get unsecured business loans online?

Yes, there are lots of great websites you can use to get loans online. Kabbage, Blue Vine, Fundbox, and Street Shares are some of the most popular options.

Does Bank of America offer unsecured business loans?

Yes, you can get unsecured business loans from Bank of America.

Does Capital One do unsecured business loans?

Yes, you can get unsecured business loans from Capital One if you meet the requirements.

Does Wells Fargo have unsecured business loans?

Yes, Wells Fargo offers unsecured business loans. These can be packaged with other business products from the bank for a discount.

Are there restrictions on how an unsecured business loan can be used?

That depends on the terms of your loan. You’ll usually have to say how you’ll use the loan to get approved in the first place. Doing something else may be a crime or breach of contract. You should consult an attorney for more information about your case.

Is venture capital the same thing as an unsecured business loan?

Not really. Most people who offer venture capital are purchasing an ownership stake in the company. That means it’s not an unsecured loan.

Unsecured Business Loans and Credit Scores

This section answers the most popular questions about unsecured business loans and credit scores.

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How to get a unsecured business loan with bad credit?

The best way to get an unsecured business loan with bad credit is to have a plan that shows how the loan money will be used to produce enough profit to cover your costs and repay the loan.

What credit score is needed to get an unsecured business loan?

Each lender sets their own credit score requirements. If your business plan is good enough, you may not even need a specific credit score.

How do unsecured business loans affect a business credit score?

It depends on how you handle the loan. If you make your payments on-time and the lender reports your payments, then your score will improve.

Can I use my personal credit to get an unsecured business loan?

It’s possible to use your personal credit to get an unsecured business loan. However, you may need to issue a personal guarantee which makes you personally liable for the loan amount if the business fails.

Can I get an unsecured business loan with bad personal credit?

Yes, it’s possible to get an unsecured business loan with bad personal credit. It will be harder, but your business plan can demonstrate how you’ll be able to cover costs and loan payments to boost your odds.

Unsecured Business Loans for Specific Businesses/Things

This section answers some of the most popular questions about what you can use an unsecured business loan for.

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How can I get an unsecured business loan for a franchisee?

Most banks will be hesitant to give an unsecured business loan for a franchise. Your best bet will be to have a down payment and a track record of running successful businesses.

Can I get an unsecured business loan for machinery?

Yes, lenders will give unsecured business loans for machinery. These loans are among the easiest to get, as banks can understand how the machinery will help you repay the loan.

Can I get an unsecured business loan for a startup?

It’s possible to get an unsecured business loan for a startup, but it’s going to be hard. Most lenders require 2 years in operation or more for an unsecured loan. Online lenders are your best bet.

Are there unsecured business loans for high-risk businesses?

Some lenders will give unsecured business loans for high-risk businesses, but you should expect the interest rate and terms to be much more favorable to the lender.

Are there unsecured business loans for vehicles?

Yes, lenders will give unsecured business loans for vehicles. However, most vehicle loans are secured by the vehicle itself.

Unsecured Business Loan Rates, Terms, and Repayment

We’ll answer the most popular questions about unsecured business loan rates, terms, and repayment in this section.

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What is the average loan for an unsecured business loan?

It’s hard to get numbers like this because most unsecured business loans are private transactions, but estimates place most unsecured business loans between $5,000 and $50,000.

How fast do you get money from an unsecured business loan?

Different lenders have different policies and procedures for loan disbursement. Most online lenders will provide funds within 24 hours. Banks and traditional lenders may take longer.

How long to pay back an unsecured business loan?

Most unsecured business loans have a term length of between one and five years.

How are interest rates set for unsecured business loans?

Each lender has their own method of setting interest rates based on the risk they perceive. Lower risk of default means a better interest rate.

What kind of interest rates do unsecured business loans have?

Most unsecured business loans will have an interest rate 3%-6% for traditional banks, 7.5% to 10% for SBA and medium-term loans, and 7% to 30% or more on short-term loans.

What is a personal guarantee for an unsecured business loan?

A personal guarantee for an unsecured business loan says that the guarantor will be responsible for repaying the loan if the business fails.

Why is there a minimum on unsecured business loans?

Lenders place a minimum on the amount they’re willing to lend to ensure that each transaction can generate enough profit to be worth their time. Processing a $100 loan will cost most lenders more than they’d make.

How long do I have to pay back an unsecured business loan?

Every unsecured business loan has its own terms. There are short-term, medium-term, and long-term business loans, and all kinds of products in between.

Are interest rates better on unsecured business loans than secured business loans?

No, interest rates are higher on unsecured business loans because the lack of collateral increases the risk to the lender.

What’s the most you can get from an unsecured business loan?

There’s no maximum for unsecured business loans that’s universally applicable. Each lender has their own policy.

Other Unsecured Business Loan Questions

We’ll cover questions that don’t fit into our other sections here. If you don’t see your question answered elsewhere, then this is the place to check.

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What happens when you don’t pay back an unsecured business loan?

Depending on the terms of the loan and local laws, the lender can sue you for a judgement that you owe them money. You should contact an attorney to see what this process and its consequences will be like in your case.

How to get an unsecured business loan for your startup?

It’s hard to get an unsecured loan for a startup. The best options are to look to online lenders over traditional lenders and make sure you have a persuasive business plan.

How to get a 50,000-dollar business loan unsecured?

The best way to get a $50,000 business loan unsecured is to have a business plan that demonstrates how the $50,000 will enable you to make enough money to meet your costs, profit, and repay the loan.

What information do I need to get an unsecured business loan?

Every lender sets their own policies about what information you need for a loan. However, at a minimum you should expect financial records from the company, your personal financial information, business credit information, and similar requests.

Are unsecured business loans the same as a business line of credit?

No. A business line of credit is a revolving credit product. You can use it, pay it off, and then use it again. An unsecured business loan is an installment product. You get approved once, get the money, and then pay it off.

Is invoice factoring a type of unsecured business loan?

No, invoice factoring is not a type of unsecured business loan. The loan you get from invoice factoring is secured by your account receivables.

Are unsecured business loans better than secured loans?

It depends on what you’re looking for. Unsecured business loans will have higher interest rates, but you don’t need any collateral. Secured loans have lower rates, but you risk losing something valuable if you default on the loan.

Jason Smith


Jason is a Senior Author for SBL. He has been working with small business owners like you for the past ten years. He graduated with an MBA and began a career as an independent financial consultant for small businesses in his state. 

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