How to Get Unsecured Small Business Loans
An unsecured business loan is a type of loan not backed by collateral—a good thing for business owners not wanting to put their valuable assets at risk. Most commercial business loans require business owners to provide collateral, such as property or equipment (or a personal guarantee) as insurance for the lender. In the case of loan default, the lender has the right to seize the collateral to recoup its losses.
Because unsecured business loans do not require any form of collateral, the lender needs to feel confident that the borrower will be able to repay the loan on time and within the terms the lender instituted. Therefore, although all loans carry a certain amount of risk, lenders look at some specific criteria before approving an unsecured business loan, such as:
- Years in business. When it comes to getting approval for an unsecured business loan, the longer the company has been in business, the better. Similarly, the longer the company has been profitable shows lenders the business can operate in a financially responsible way.
- Credit score and credit history. The lender cannot assume you will repay loans and bills on time without an established business credit history. A good credit score is based on:
- The types of loans the business (or the owner) has had in the past
- If the company has an excellent debt-to-income ratio
- And if the payments are made on time.
- Personal credit score and credit history. Particularly true with unsecured loans for business, lenders will want to see the business owner’s personal credit score/history and prefer a score of 700 and above.
- Sales. Lenders will carefully scrutinize your financial statements not only to see how you manage your business’s money but also to verify past sales. Then, based on those past sales, they will lend you a percentage of what the business earned. Most lenders prefer lending to a company with sales of at least $100,000.
Types of Unsecured Business Loans
There are several types of unsecured small business loans that do not require collateral.
It is very rare to find an unsecured long-term business loan. Long-term business loans are repaid in monthly installments over the life of the loan (the term). Long-term small business bank loans typically offer larger amounts of money, have low interest rates, and manageable payments since the borrower has longer to repay the loan. However, getting qualified for a long-term loan from a bank or other lender requires a solid financial position.
Likewise, because long-term loans could take years or even decades to repay, it is unlikely a business will get approved for a long-term unsecured business loan from a lender unfamiliar with your company. Most lenders will only offer an unsecured business loan to a company after a secured business loan has been repaid.
Alternately, short-term unsecured business loans are relatively easy to find because loan amounts are smaller, and the repayment period is short (usually a year or less). However, because a short-term business loan must be paid back quicker than a long-term loan, expect the interest rates to be significantly higher. A short-term unsecured business loan could have interest rates as high as 80%, especially if the business has a short credit history or insufficient revenue. On the positive side, a short-term loan should cost your business less because the amount of the loan and the term of the loan are smaller. Business owners tend to apply for short-term business loans to get past a seasonal slump or purchase an essential piece of equipment.
3—Unsecured Business Line of Credit.
An alternative to a bank loan for business is an unsecured business line of credit. Instead of applying for an unsecured business loan, a line of credit is a fixed amount of money available to a company to access for any purchase or expense it sees fit—and it “never runs out.” The credit line is revolving, which means once the money is paid back, it is available again for the business owner to borrow. The business always has access to the total amount but only pays fees on the amount borrowed. And when the total approved amount is back in the fund, there is no cost to the borrower.
Most banks offer secured lines of credit only, which means the borrower must come up with collateral for approval. Here at Financing Solutions, we offer an unsecured line of credit, and you also have the benefits of an easier application process:
- There are no costs to set it up or keep it in place
- The easy 2-minute application online application
- If approved, you’ll receive a same-day, no-obligation offer letter
- The fastest setup, 48-72 hours
- Once you have the line of credit, requests for funds are wired to your bank in minutes
- You can use your line of credit whenever needed
- Inexpensive when used (low fees)
- There are no restrictions in place or collateral required
- No personal guarantee is required, either
- Financing Solutions is a leading provider of lines of credit
- We are a reputable company with an A+ & 5-star rating
- You can pay off the line whenever you are ready
- The credit line is easy to renew and renews yearly
- You have a secured account portal access 24 x 7
An unsecured line of credit is a good funding resource for the minor emergencies all companies face at some point. If you want to see if your company would be approved and for how much, please fill out the no-obligation, 2-minute line of credit application here.