Unsecured business loans can make it easier for startups and existing companies to get the money they need to succeed without putting up any collateral.
This valuable item secures the loan and gives the lender the right to take possession in case of a severe default. However, the absence of collateral does not absolve borrowers of all responsibility.
Unsecured small business loans don’t require collateral. Thus, lenders often demand that borrowers provide a personal guarantee.
If the firm cannot pay the obligation, the borrower is obligated by law to settle the amount with their own money. Once the loan is paid back in full, the private security is taken out of the account.
What Are Unsecured Commercial Loans?
The main distinction between secured and unsecured business loans is that the latter don’t call for collateral to be put up as security for the loan amount.
However, any default can have long-term repercussions that outweigh the benefits, like adverse effects on your business’s credit score. In addition, the personal guarantee terms specified within unsecured loans can be very lenient for borrowers.
The lender often charges substantially higher interest rates for an unsecured business loan because it benefits the borrower more than a loan secured by collateral.
Because of this, getting this form of loan is much more challenging. Unsecured business loans are inherently risky, so to reduce the lender’s risk, they are typically issued as short-term loans.
Your small firm must be able to “present the lender with a good credit rating, a solid financial history, and a cash flow forecast” to be eligible for an unsecured business loan.
A traditional lender will rarely authorize an unsecured loan; online lenders are more common for these financing arrangements.
Benefits of Unsecured Loans
Let’s look at the main advantages of unsecured loans and how they can meet SMEs’ financing needs to understand why they are a popular financing option.
- No Collateral
Unsecured loans don’t need the borrower to give the lending company any collateral as security. Instead, before they can approve the loan application, lenders typically require the borrower to pledge a security interest in an asset. However, SMEs may only sometimes find this to be a viable alternative.
- Less strict requirements for eligibility
Compared to other loan types, unsecured loans have fewer strict eligibility requirements. So, it should be easy to get an unsecured loan if you have a good credit history and a steady source of income. Before processing the loan, you must submit supporting documentation demonstrating your eligibility.
- Rapid loan approval
There is very little documentation for unsecured loans, and there is no time-consuming paperwork involved. Submit all the paperwork online, and the loan is approved quickly. Therefore, the procedure for applying and getting approved is easy and practical.
- Flexible options for repayment
The majority of unsecured loan providers provide flexible repayment plans. But because clients don’t always pay on time or because bills aren’t paid, SMEs may need help to meet the early monthly repayment deadlines that apply to most secured loans.
Best Unsecured Commercial Loans
Since its establishment in 2006, OnDeck has established itself as a market leader in the provision of business loans, providing both term loans and lines of credit. They have now offered small firms financing totaling $14 billion.
Due to the breadth of business lending packages and same-day funding offered by OnDeck, we chose it. A term loan between $5,000 and $250,000 is available via OnDeck, with payback terms of up to 24 months.
You also have access to a line of credit with a credit limit of $6,000 to $100,000, a 12-month repayment period, and a credit limit that resets every time you take money out.
In December 2021, American Express’ Kabbage company introduced Kabbage Funding. With the help of American Express, Kabbage can offer small businesses a wider range of tools for managing their cash flow.
Through Kabbage, entrepreneurs can qualify for business lines of credit ranging from $2,000 to $250,000. Terms for repayment range from six to eighteen months.
A financial technology startup called BlueVine offers funding options to small businesses throughout the country. It focuses primarily on checking accounts and commercial lines of credit. As of December 2021, BlueVine will no longer offer invoice factoring as a way to get money.
The amount of money available to small business owners who want to use a line of credit on an as-needed basis ranges from $6,000 to $250,000; additionally, BlueVine levies weekly or monthly fees for its credit line. The standard price for the line of credit is 1.7% per week or 7% per month.
- National Funding
Small business working capital loans from $5,000 to $500,000 are available from National Funding, with terms ranging from four months to two years, with daily or weekly payments.
With the money they borrow, the borrower can pay for all of their working capital needs, such as inventory, payroll, marketing, taxes, and more.
National Funding also offers financing for up to $150,000 worth of equipment, but applicants must have a personal credit score of at least 575 to qualify.
National Funding provides discounts for an early pay-off, unlike most business lenders. Customers who pay off the rest of their small business loans within the first 100 days of the contract will get a 7% discount.
Frequently Asked Questions
1. How do you get an unsecured business loan?
Ans. Traditional financial institutions like banks and credit unions, as well as internet lenders and other fintech startups, offer unsecured business loans. Ask about the bank’s or credit union’s business loan options if your company already does business with them.
2. How hard is it to get an unsecured business loan?
Ans. Like many other things, getting cash swiftly, affordably, or effortlessly is possible with unsecured business loans, but not usually all three. There are suppliers who can assist you if you require financing quickly.
3. Can you get an unsecured loan with bad credit?
Ans. Even though it could be more challenging, getting an unsecured business loan is still doable with adverse credit.
Even if your credit isn’t great or if you’re still building up your business credit, you may get unsecured funding through invoice financing or an MCA.