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Payroll hits on Friday, and a truck goes down on Thursday. You need cash quickly, and you don't have any assets that you can put on the line to get it.
When you're in a pinch like this, an unsecured term loan can be a helpful option. You get a lump sum, repay it in fixed installments over a set term, and put up no collateral. The lender approves you based on your credit history, your financials, and how the business is performing.
In my experience working with SMBs, unsecured term loans are a useful option when speed is the most important factor. Below, I'll go over what these loans cost, what lenders look for, and how well-known lenders and marketplaces compare.
| Lender | Interest rate | Max loan amount | Repayment terms |
|---|---|---|---|
| Clarify Capital | APR starting at 6% | $5 million | 6 to 36 months |
| Bank of America | 7% fixed | $100,000 | 12 to 60 months |
| OnDeck | 56.4% average APR | $400,000 | Up to 24 months |
| PNC Bank | Fixed rate | $100,000 | Up to 5 years |
Pros and Cons of Unsecured Term Loans
Like any financing option, unsecured term loans come with benefits and tradeoffs.
Pros
You don't need collateral. Your property or equipment won't be included in the deal.
Approval and financing are quick. Clarify Capital's network of lenders can process financing as fast as same day.
Payments are fixed. You pay the same amount throughout the entire loan term.
The process requires less paperwork. Spend less time filling out forms because there aren't any appraisals or asset valuations.
Cons
Rates tend to be higher. Lenders assume more risk because there's no collateral, so interest rates tend to be higher.
Your credit profile is a stronger focus. Creditworthiness plays a bigger role because there aren't any assets backing the loan.
Loan amounts are smaller. Unsecured loan amounts are typically less than what you could borrow against an asset.
You may sign a personal guarantee. This means your assets could be at risk if you don't pay back the loan.
Minimum Qualifications
$10,000 in monthly revenue
Your business must earn at least $10K per month in a business bank account.
500+ credit score
You can get approved with any credit score. But the better your credit rating, the better interest rates lenders offer. Your FICO score should be above 500.
Minimum six months in business
Your company should be operational for a minimum of six months. This shows business lenders that your company is sustainable and won't go out of business.
Have a business bank account
Your Clarify advisor will need three or four months of your most recent bank statements to verify income. This is just to see you're actually making $10K+ month in revenue.
What Unsecured Term Loans Are Used For
Unsecured term loans can be useful when you need money fast. Business owners most often use these loans for the following reasons.
Working capital
Helps you cover day-to-day expenses when receivables are slow.
Payroll and hiring
Add more staff members to grow your business or during a busy season.
Inventory
Buy in volume or in advance of a busy season, even when you're low on cash.
Equipment and repairs
Replace or repair broken equipment fast without tying it to the loan.
A second location
Paying for a new space to grow your business.
Marketing
Cover the cost of a campaign to grow your business.
Unsecured Term Loans vs. Secured Loans
Here's a quick breakdown to help you compare unsecured term loans and secured loans to choose the option that's right for your business.
| Feature | Unsecured term loan | Secured term loan |
|---|---|---|
| Collateral | None required | A specific asset backs the loan |
| Approval speed | Same day to a few days | 1 to 8 weeks |
| Rates | Higher | Lower |
| Loan size | Smaller | Larger |
| Typical terms | 6 to 36 months | Often 5 years or more |
| What's at risk | Your credit and your personal guarantee | The pledged asset, plus your credit |
Considering a secured loan? A home equity line of credit (HELOC) allows you to borrow against the equity in your home, often at a lower interest rate and over a longer period of time compared to an unsecured term loan. The trade-off is that your house is collateral.
What a $50,000 Unsecured Term Loan Costs
Interest rates on unsecured term loans vary widely. Well-qualified borrowers can see APRs starting at 6%, while a weaker credit profile can push the cost higher. Below, I've broken out how much interest you'll pay on a $50,000 unsecured term loan at 12% APR. Remember, this is just an example. Your lending advisor can show you specific payment scenarios based on your qualifications and financial profile.
| Repayment term | Monthly payment | Total interest | Total repaid |
|---|---|---|---|
| 12 months | $4,442 | $3,309 | $53,309 |
| 24 months | $2,354 | $6,488 | $56,488 |
| 36 months | $1,661 | $9,786 | $59,786 |
Other Financing To Consider
An unsecured term loan isn't the only way to cover a cash gap. Here are some other options to consider as well.
Business line of credit. A business line of credit is a revolving source of funds that lets you borrow money up to a predetermined amount, pay back the borrowed funds plus accrued interest, and then borrow more money against that same source until you reach the total amount allowed.
Invoice factoring. Invoice factoring lets you sell your unpaid invoices to a factoring company for immediate cash, and they take responsibility for collection efforts.
SBA loans. Banks, credit unions, and online lenders issue SBA loans, and the U.S. Small Business Administration (SBA) backs them partially.
Equipment financing. With equipment financing, the equipment you're buying becomes collateral for the loan.
Risks To Check Before You Sign
Missing a payment on an unsecured term loan can mean a hit to your credit, or if you sign a personal guarantee, the lender can come after you personally. Keep an eye out for the following before you sign.
Payment frequency. Withdrawals daily or weekly hit cash flow much harder than monthly payments.
Fixed or variable rate. Fixed rates stay the same while variable rates fluctuate with the prime rate.
Fees. Origination fees, processing fees, and late fees can increase your cost.
Prepayment terms. Know precisely what you sign and which assets are named.
Personal guarantees and liens. In place of collateral, you may be asked to sign a personal guarantee or a lien on your asset.
Apply for an Unsecured Term Loan With Clarify Capital
If you have steady revenue and a clear plan for how you'll use the money, an unsecured term loan can be a good option for bridging a gap in cash without putting your assets at risk.
Through Clarify Capital, your application reaches 75+ vetted, reputable lenders. Apply today to see what you qualify for. Checking your options won't impact your credit score.
Frequently Asked Questions
These are the questions many business owners ask me about unsecured term loans.
Can a Term Loan Be Unsecured?
Yes, banks and online lenders offer unsecured term loans. Instead of relying on collateral, lenders consider your credit score, revenue history, and your length of time in business. Most still require personal guarantees, and some file blanket liens on business assets, so make sure to read the agreement carefully.
What Is the Easiest Unsecured Loan To Get?
Online lenders tend to have more flexible credit and revenue requirements. To qualify with Clarify Capital, you need a minimum credit score of 500 and at least six months in business. Banks usually want stronger credit and two or more years of business history.
How Much Would a $30,000 Personal Loan Cost a Month?
At 15% over five years, you'll pay roughly $714 per month and about $12,822 in total interest. Over three years at the same rate, you'll pay roughly $1,040 per month and around $7,439 in interest.
What Is the Term Length of an Unsecured Business Loan?
Term length varies by lender and qualifications. At Clarify Capital, unsecured term loans range from six months to three years. Some bank loans stretch up to five years.
What Happens if You Can't Repay an Unsecured Term Loan?
Lenders report missed payments, and your credit score drops. From there, it can go into collections or lawsuits. If you signed personal guarantees or the lender placed blanket liens, then personal assets are also at risk. Contact the lender directly and talk to them about it. They might be willing to restructure your loan.
Is My Information Safe When I Apply?
Clarify follows SOC 2 security principles. Applicants submit their information directly to a qualified lending advisor who'll personally contact them about their loan application status.
Bryan Gerson
Co-founder, Clarify
Bryan has personally arranged over $900 million in funding for businesses across trucking, restaurants, retail, construction, and healthcare. Since graduating from the University of Arizona in 2011, Bryan has spent his entire career in alternative finance, helping business owners secure capital when traditional banks turn them away. He specializes in bad credit funding, no doc lending, invoice factoring, and working capital solutions. More about the Clarify team →
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