Guide

Clara's best Unsecured Business Loans.

What is an unsecured business loan?

Unsecured business debt is a way for you business to borrow money without pledging any of your businesses' inventory, equipment or real estate . An unsecured business loan is issued solely on a borrower's creditworthiness. Unsecured business debt can also be called signature loans or personal loans (even though they are used for business purposes).

They are commonly used to cover operational costs, expansion, equipment upgrades, purchasing of inventory, consolidating business debt, or to help bridge gaps in cash flow. 

In exchange for funding, lenders will require repayment of the principal with interest in addition to potential fees.

What are the pros and cons of an unsecured business loan?

The benefits of an unsecured business loan are:

  • They not dependent upon the value of collateral, so there is no risk to existing business assets in the event of a loan default.
  •  It may be easier to apply for and get approved to borrow smaller amounts of money. 
  • The online unsecured loan process involves less paperwork and can take less time to apply.
  • Funds can be available with a day or two
  • The underwriting process may be easier without documenting collateral assets in an appraisal process.
  • Paying back your debts on-time can help to build business credit.


The cons of an unsecured business loan are:

  • You as a director or manager of the company must make a personal guarantee, so if the debt is defaulted on, your car, house, stocks or other things could be taken.
  • Interest rates are usually higher than a business line of credit or a secured business-loan.
  • The amount you can borrow tend to be lower.
  • You will need an excellent credit score.
  • They  can be very difficult to get.


Is a unsecured business loan right for your company?

When seeking business financing for your company, it's useful to look at how other companies like yours go about it.

According to data from the Survey of Business Owners in 2012 only 5% of businesses used bank debt to expand, 5% used personal credit cards, 22% used personal savings and 57% didn't expand at all.

Banks are still your best bet for a loan according to data from the Small Business Lending Index. However there are a number of new companies called FinTechs (Financial Technology) that are offering unsecured loans to businesses also. Our list above is the best way to compare all the options.

What should you look out for when chosing an unsecured business loan?

There is really no so thing as a fully "unsecured business loan."

Understanding the lending world can be confusing and time-consuming, so it pays to check a couple of things and make sure the lender you're working with isn't a bad actor.

You can use the our tool above to figure out more information on these companies but you should look out for:

  • Does this loan require any kind of personal guarantee?
  • What is the (APR) or annual percentage rate?
  • Read the fine print! It is important to read and understand the entire document.
  • Look for the terms "UCC" (Uniform Commercial Code) - which gives the lender the right to any number of personal goods above all others or "Blanket Lien which gives the lender rights to all of the debtor's assets " in the fine print and understand the implications.


Some of the key terms are:

Loan amounts: 
The amounts offered should fit your forecasting for your business needs. 
Typically what is offered is from $1,000 up to $250,000, but may exceed $1,000,000.


Loan term length: 
lending terms commonly range from 3 months to 60 months. Businesses should evaluate their term length against the amount needed, how long they will need the funds, and what interest will they accrue over the life of the loan.


Interest rates: 
Expect typical interest rates in the range of 5% to 40% APR. Borrowers seen as low-risk (great credit history, solid cash flow, several years in business) will qualify for the best rates. Keep in mind that unsecured small-business debt carry higher annual percentage rate than secured debt.
    

Origination fees and other fees: 
Lenders may charge an origination fee, typically 1% to 5% of the entire amount, that is charged for processing the application to borrow money and other administrative expenses. There may be an underwriting fee in the range of $20 to $400.

Personal guarantee/blanket lien:
Some lenders will require a personal guarantee giving the lender the right to seize personal assets (i.e. home or car) to recoup the borrowed amount if the business fails to repay.


Applying for an unsecured loan is an excellent option to finance business expenses without pledging specific collateral. If your business is seeking quick funding and meets the common lender requirements there are plenty of online unsecured loan lenders offering varying loan amounts, term lengths, and competitive interest rates. Unsecured debt is the most beneficial for businesses with solid financials that do not want to risk business assets, need a flexible use of funds, and are seeking an alternative to traditional bank financing.



Unsecured vs. Secured Business Loans – How do they work?

Once a small business decides that debt financing with a term loan best suits their needs they will then need to weigh the options of applying for secured or an unsecured debt. An unsecured business loan requires no collateral. No collateral unsecured loans, the creditworthiness of the small business borrower helps to determine the amount you can borrow, interest rates, and how long you can borrow for. Lenders generally look for a solid track record which may include a certain length of time in business and a minimum revenue figure. For this reason, unsecured loans are common for low-risk borrowers.

Secured debt requires collateral as the borrower’s pledge of specific assets to a lender to secure repayment in the event of a default on the loan. Secured loans are more common for businesses with a higher perceived risk, but due to the collateral requirements they have lower interest rates. Types of small business collateral can include real estate, cash, equipment, property, or other valuable business assets that act as secondary payment if a borrower cannot pay back the loan. 

What type of businesses should apply for an unsecured loan?

Before applying for an unsecured loan small businesses should plan for the funding they’ll need and forecast where these funds will be allocated. This will help you decide the appropriate amount to borrow for your needs since loans will be deposited in lump sums. Businesses that have been in operation for a relatively longer period of time with strong financials and a solid track record of growth and sustainable revenue will find the lowest interest rates due to the fact that the lender will perceive the borrower as more likely to pay back the debt in full and on-time. While unsecured-loans may be approved for almost any type of business model, debt with no collateral requirements may be a more attractive financing option for companies with minimal physical capital or business assets that have a strong cash flow. 

How to get an unsecured business loan?

Lenders will investigate your credit score and the financial history of your company. It may be difficult for early stage businesses to qualify since lenders will need plenty of data regarding credit history, balance sheets, and cash flow to make a decision. As a borrower, you will want to be prepared to provide several forms of business financial records (different lenders may require various documents in the application process). It is critical to plan for the loan amount you will need and to have a justification for where the funds will be allocated. 

Here are a few of the basic requirements that lenders will look for.

  • Lenders will look for an established business credit history (usually at least 12 months of fiscal data).
  • A personal credit score that is rated good to excellent (670 to 850) will have higher chances for receiving loans and competitive interest rates.
  • Most lenders will require at least 12 months in business, but for younger business they may consider impressive credit, sales, or strong cash flow.
  • Generally, the larger your revenue and sales figures are the larger loan your business will qualify for. In some cases the amount will be a percentage of total sales. The majority of lenders will be looking for annual revenue over $100,000.

Can I get an unsecured business loan for startup?

Getting an unsecured business-loan for startup is possible, if your startup doesn't have any revenue or sales orders this of course makes the process more challenging, but it isn't going to stop you from getting a loan but it may need to be secured against your personal property.

The kind of business will be very relevant, if it's a riskier tech play borrowing money will be much harder, if it's a restaurant and you need capital to set it up this is more likely.

If your startup is pre revenue and operates in the high tech sector we recommend you check out business angels instead of borrowing money. They're more willing to invest in your company than a lender is to lend with no revenue history.

We get asked a lot about Startup business loans bad credit no collateral.

The answer is a likely no here, unless the company has revenue (even without collateral) but without revenue, bad credit and no collateral the risk to lend your company money is too high, and any lender who is willing is likely more a loan-shark than a reputable lender.


What are snapcap loans?

Snapcap or Snap Capital is a LendingTree product where they connect you with lenders if you meet specific credit score and revenue requirements, it requires you submit data about your business and then they pair you with a lender, so it's great if you don't want to spend time vetting vendors, but you don't get a say who your lender is.

Snapcap Reviews

We've read a lot of snapcap reviews and most of them are positive, the key thing they highlight is great customer service and fast payouts. The negative reviews aren't happy with the interest rates generally. 

What are BFS loans?

 BFS Capital offers short term, no collateral unsecured loans up to $750,000. The term on this debt is for 6-18 months. Only businesses in operation more than two years and with a minimum of $25,000 revenue per month on average. The upside these guys can be fast approving loans in 24 hours and funding them within three days (at least for the first 100k.)



Types of business finance

There are a few different types of business finance we'll outline the key types here:

Secured Loan

Is a type of business finance that requires a kind of security for the lender, many of the other kinds of loan on this list will require this kind of security typically too. Usually you give a personal guarantee, guarantee over the assets being purchased or security over business assets likes buildings, stock, or other valuable business assets.

Unsecured Loan

Is a type of business-finance that doesn't require you to put up assets against the loan, usually the lender will vet your credit score, the businesses credit score and your businesses revenue. Typically this debt is more expensive in terms of interest charged than a secured loan.

Line of Credit

Is a type of business finance that operates a lot like a credit card (or even can be a business credit card), you can draw down for specific costs and only pay interest on those. They are typically higher cost loans and good for short term cash flow but wouldn't be good for larger expenses.

Working Capital Loan

Is a type of business finance that can be used for day to day working expenses, like payroll or inventory costs. They take a bit longer to get but are typically cheaper than other loans.

Business Term Loan

Is a type of business finance that you get in a lump sum and pay back in regular installments for a fixed term (usually between 1-5 years.)


Small Business Administration (SBA) Loan

Is a type of business-finance that are government backed and securitized against personal or business assets they have three different programs:

  1. The 7(a) Loan Program is the SBA's main loan program they offer between $350,000 to $5 million.

  2. The Microloan Program is ideal for smaller business with less collateral, they offer $10,000 to $50,000.

3. The CDC/504 Loan Program is a small loan fixed rate long term financing program, it's main purpose is to modernize or expand operations including buying new equipment or real estate. These loans have a 5-25 year term and usually go up to $5 million.

Accounts Receivable Factoring or Invoice Factoring

Is actually not a debt but a sale of an unpaid invoice. They're ideal for businesses that have short term cash flow issues and are willing to sell unpaid invoices at a reduced price to get cash quickly.

Invoice Financing

Is a type of business finance that lets you borrow against unpaid invoices and then pay back once the invoice is paid.


Merchant Cash Advance

Is a type of business finance is less debt and more an advance on sales revenue you haven't got in your account yet. Another type of funding that is useful for short term capital needs.

If you need more information on short term business loans our friends at the Financially Independent Millennial.

What is Fast Track business loan?

Fast Track is a business lender from New York, in order to qualify for their loans your company must be 6 months or older, have $120,000 revenue annually and you must own 50%.

If you're looking for Fast business loans check out our list here.

The least expensive form of short-term financing is?

Typically Trade Credit, this does rely on you basically being able to pay suppliers later and save cash for costs.

However this isn't available for everyone we recommend checking out business line of credit or business credit cards which one activated (which can be within 24h) can be used whenever credit is needed.

Balboa Capital reviews

Balboa Capital is a business lender with a number of lending products.

Balboa Capital reviews are mixed for sure, some of their customers love them as they were unable to get access to traditional lenders like BoA or Wells Fargo while others complained about the terms of their loans or 'unfair practices' we can't confirm these but we recommend you read the entire contract if you don't understand it leave us a comment or ask your loan rep at Balboa.

Who are Global Funding experts?

Global Funding experts are a merchant cash advance lender, they can help you access $2000 - $500,000 within 5 business days.


No Money Down Business Loan

The issue we see a lot is many unsecured business loans require an application fee or an upfront payment, for example a bridge-loan costs from 10-20% in advance payments.

Here's a list of no money down business loans:

SBA Microloan
SBA CAPLines Program
SBA Export Loans
SBA Disaster Loans

Check our full list of lenders and their application and fees here.
Minimum Credit Score
300
Minimum Months In Business
6
Minimum Annual Revenue
0 USD
Minimum Loan Amount
5,000 USD
Maximum Loan Amount
500,000 USD
Minimum Interest Rate
12%
Vendor Airtable Api Key
appqSJ8LJq96g8KF4

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Post Oak loans are great for businesses that are relatively young. You can get approval within 24 hours and funding within 1-2 days.

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Minimum Credit Score
640
Minimum Loan Term Months
12
Maximum Loan Term Months
60
Minimum Loan Amount
10,000 USD
Maximum Loan Amount
100,000 USD
Minimum Interest Rate
6.25%
Maximum Interest Rate
22.99%
Underwriting Fee Minimum
150 USD
Vendor Airtable Api Key
appqSJ8LJq96g8KF4

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Wells Fargo offers an unsecured loan that can be approved instantly. It's ideal for: large one-time expenses, business expansion, facility remodels and emergency repairs. The loan requires $1.50 in cash flow for every $1 borrowed.

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Minimum Loan Term Months
6
Minimum Credit Score
560
Minimum Months In Business
12
Maximum Loan Term Months
18
Closing Fee
No
Notes
More than $100k requires 36 months in business
Minimum Annual Revenue
50,000 USD
Minimum Loan Amount
2,000 USD
Maximum Loan Amount
250,000 USD
Minimum Interest Rate
1.5%
Maximum Interest Rate
10%
Payment Frequency
monthly
Minimum Origination Fee
0%
Interest Accrual Periods
monthly
Maximum Origination Fee
0%
Vendor Airtable Api Key
appqSJ8LJq96g8KF4

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Kabbage offers unsecured loans in the form of lines of credit for small businesses needing quick funding and financing and is available to companies with bad credit or low credit scores.

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