Unsecured Business Loans: Best Options and How to Get One

If you don’t have substantial physical assets — or simply need capital quickly — an unsecured business loan might be a good option. These small-business loans are available from banks, credit unions and online lenders.

An unsecured business loan is a type of financing that doesn’t require you to pledge physical collateral — which are assets like business equipment, inventory or real estate — that the lender can take if you fail to repay your loan. But even though physical collateral isn’t required, that doesn’t mean you’ll be off the hook if you can’t repay an unsecured loan; most unsecured loans are backed by either a personal guarantee or Uniform Commercial Code lien.

Unsecured business loans typically work like other types of debt financing — you apply for a loan, receive funds and repay what you’ve borrowed over time with interest.

Unsecured business loans usually fund faster than secured business loans because the lender doesn’t have to check the value of your collateral. However, the absence of collateral makes them riskier for lenders, which is why unsecured loans typically have higher interest rates and may require personal guarantees or UCC liens.

There are many different types of unsecured business funding options, including:

Term loans are likely what you imagine when you think of a business loan. These loans are lump sums of capital that you borrow from a lender and repay over a fixed period of time. This type of loan works well for funding a specific investment or purchase for your business.

Credit lines are a flexible form of financing that allow you to borrow up to an approved limit and pay interest only on the amount you use. As you repay the balance, the funds become available to borrow again. Unsecured business lines of credit can be used for working capital, short-term expenses and emergency funds.

Invoice factoring lets you sell your unpaid invoices to a factoring company in exchange for cash advances. The company takes control of the invoices and collects payment directly from your customers. Although factoring companies may want to see established invoicing practices and a certain time in business, a personal guarantee is often not needed because you’re selling the asset directly.

With a merchant cash advance (MCA), you get a cash advance based on your sales, which you’ll then repay with a portion of your future sales. MCAs are usually easier to qualify for than other types of business financing, but they are expensive and risky, making them a last-resort option.

Follow these steps to get an unsecured business loan:

Decide how much funding you need and how much debt your business can afford. SS’s business loan calculator can help you estimate your monthly payments and total interest costs.

Without collateral, lenders place greater emphasis on traditional business loan requirements, such as your personal credit score, annual revenue and time in business.

Although online lenders often accept startups and borrowers with bad credit, these businesses may receive higher interest rates. Established businesses with good credit and strong finances will be able to access the most desirable rates and terms.

Research multiple small-business lenders to find the best choice for your business. Compare factors such as maximum loan amounts, interest rates, repayment terms and fees. You’ll also want to consider a lender’s application process, time to funding, customer service and reputation.

Application requirements vary by lender, but you’ll typically need to provide:

• Basic information about you and your business.

• Business and personal tax returns.

• Business and personal bank statements.

Online lenders may speed up the underwriting process by allowing you to connect your financial accounts directly to their platforms. You may be able to get a business loan from an online lender in as little as 24 hours. Banks and credit unions, on the other hand, may take several days, or even weeks.

Shopping around can help you secure the best deal. Compare offers from a few lenders to help you get the best deal possible. Here are some things to look out for when sizing up unsecured loans for your business:

• 💵 Loan amount. Some lenders may not offer the full amount you need. If you borrow less than what you need to fund your business goals, you may risk falling short of revenue targets, making it harder to pay off the loan.

• 📈 Interest rate and fees. These can vary widely across lenders. Compare each loan’s APR, which includes both the interest rate and any upfront fees.

• ✍️ Guarantee requirements. While unsecured loans don’t require specific business assets as collateral, you’ll likely have to agree to a personal guarantee and/or Uniform Commercial Code lien. Make sure you understand the risks before signing. 

• 🗓️ Repayment terms. The length of your loan and payment frequency vary by lender. Make sure your business has sufficient cash flow before committing to frequent payment terms or shorter loan terms. Ask about prepayment penalties, which some lenders charge if you repay early.

Here are a few other financing options to consider (that don’t require collateral):

• SBA loans. If you only need $50,000 or less, an SBA 7(a) Small loan, SBA Express loan or SBA Export Express loan may not require collateral. But if you need more than that, SBA lenders may require it. Read more about SBA loan collateral requirements.

• Personal loans. If you have strong personal credit and need a smaller amount of financing, an unsecured personal loan may help you get funds for your business without putting up collateral. 

• Business credit cards. For newer businesses without collateral, steady revenue or an extensive track record, business credit cards can help cover small, daily expenses or unexpected costs. However, interest charges can add up quickly if you carry a balance.

• Small-business grants. While competitive and unlikely to cover all your funding needs, grants provide free money for eligible businesses. SS offers a comprehensive list of small-business grants to help you get started.