How to Get an Unsecured Business Loan: The Definitive Guide
Most lenders require some form of collateral if you want to get a business loan. This can come in the form of real estate, equipment, or other personal assets. The need for collateral, however, can prevent new businesses or startups with limited assets from accessing the funding they need. The collateral requirement also increases the risk for entrepreneurs.
Luckily, there are financing options available for business owners through unsecured business loans. Unsecured loans — also known as uncollateralized loans — allow you to borrow capital without collateral.
Here’s what you’ll learn in this comprehensive guide to unsecured business loans:
- What you can use unsecured loans for
- The different types of unsecured loans available
- The advantages of each type of loan
- How you can qualify for business funding
- How to get approved quickly even with bad credit
- The best ways to use uncollateralized capital to grow your company
- Answers to frequently asked questions about business loans
Keep reading if you’re looking to get working capital without putting your assets on the line.
The Best Unsecured Business Loan Options of 2023
There are two key advantages that unsecured business loans have over secured business loans. First, with an unsecured business loan, a lender can’t seize your business assets if you fail to pay back the loan. Second, you can get funded faster.
There are different types of unsecured business loans, which is a good thing — one financing option may offer a better solution for your business needs than others. Here are a few unsecured business loans to consider:
1. Unsecured Short-Term Loans
Best loan for: Business owners who need the fastest possible funding with minimal documentation.
For many, traditional business loans refer to unsecured short-term loans. This is the simplest form of financing to understand.
With a short-term loan, you can get a lump sum of cash at a fixed interest rate without collateral. You pay back the money in set monthly payments based on a specific loan term length — usually up to two years.
At Clarify Capital, we’ve streamlined our online application to get you approved within minutes. Interest rates start at 7% for credit scores over 550.
These are the key benefits of unsecured short-term loans:
- Any type of business can get approved
- No collateral requirements
- Competitive interest rates offered by over 75+ lenders
- Highest approval ratio
- Early payoff incentives
2. Unsecured Business Line of Credit
Best loan for: Entrepreneurs who need a revolving credit line without collateral.
A business line of credit is a revolving credit. It’s similar to a credit card in that you can draw funds from your credit line when business expenses arise. You’re only charged interest on those withdrawn funds. This makes a revolving business line of credit a great loan option to cover day-to-day working capital.
Lenders typically offer unsecured credit lines with lower loan amounts and shorter term lengths compared to their secured alternatives. But it’s still a great financing option for business owners looking to borrow capital with flexible repayment terms.
There are the key benefits of unsecured business lines of credit:
- No prepayment penalties
- Lower interest rates than credit cards (starting at 6%)
- Helps increase your personal credit rating
- Funds are available for use on-demand
3. Unsecured Invoice Financing
Best loan for: Business owners who want to get paid for outstanding accounts receivables.
Also known as factoring, invoice financing allows borrowers to sell their outstanding invoices and get paid in advance. The invoices themselves serve as collateral, so you don’t need to risk any assets.
You get between 85% and 100% of the invoice value upfront. When the invoices come due, the factoring company collects from your customers. Then they take their fee and pay you any remaining balance.
This is one of the few options where your personal credit score isn’t one of the main criteria in the approval process. Lenders focus more on your customers’ creditworthiness — making invoice factoring a good fit for owners with bad credit.
Here are the key benefits of unsecured invoice financing:
- Personal credit rating isn’t a factor
- Get instant cash flow without taking on new business debt
- Quick approvals
- Your unpaid invoices act as collateral
4. Merchant Cash Advance
Best loan for: Entrepreneurs who need a lump sum of cash in exchange for a percentage of future sales.
A merchant cash advance (MCA) is a financing solution based on your creditworthiness, past sales, and future sales. You receive a lump sum loan that you repay daily or weekly through a portion of your future sales. It’s a loan option that can help business owners bridge gaps in cash flow and deal with unexpected expenses.
An MCA covers your immediate needs for cash but won’t leave you taking on more debt. The payment schedule is flexible, as you only pay as much as your sales. That’s why retail businesses and restaurants are a good fit for merchant cash advances due to the seasonality of the industry.
Here are the key benefits of a merchant cash advance:
- Personal credit score isn’t a factor
- Easy approval process
- You’re borrowing against future credit card transactions
- No collateral needed
- Flexible payment terms
How to Apply for an Unsecured Business Loan
Getting access to capital is often a key factor for business survival and growth. As a business owner, you wear multiple hats, and your to-do list is long. You don’t have spare time to spend researching lenders and going to the bank to apply for loans.
That’s why at Clarify, our application process is easy and quick — it takes just minutes to fill out the online form. Then we do the work to get your business approved and funded in as little as 24 hours.
Here’s a complete look at how our simple lending process works:
Step 1: Determine How Much You Need to Borrow
Applying for a loan without knowing how much you need and what you need the money for can put your business in a difficult situation when it’s time to pay. It’s good to go in knowing how much you need and how much you can afford to borrow.
If you’re using the money for working capital, make a list of the business expenses you expect to pay soon. This may include office rent, employee salaries and wages, and inventory.
If you’re using the capital to fund business expansion, jot down all expenses you may incur and add at least 10% for contingency. Crunching the numbers will give you a reliable estimate of how much capital you really need.
Step 2: Apply Online
At Clarify, we take ease of funding and quick approval times seriously. That’s why our application process takes three quick steps.
Fill out our online application — it takes two minutes — or call and speak to a Clarify advisor.
Step 3: Keep a Few Recent Bank Statements Handy
After we review your application, you get matched with a dedicated advisor. They’re there to answer any questions you may have. Your advisor also works with you to choose the best loan option based on your specific financing needs.
To make the process quick and easy, we suggest keeping the following documents handy:
- Legal identification documents, such as a driver’s license, Employer Identification Number (EIN), and Social Security Number (SSN)
- Personal and business bank statements (3 to 6 months)
- Personal and business tax returns (2 to 3 years)
- Business financial statements, such as balance sheets and income statements
Step 4: Get Funded!
Depending on the loan amount and requirements you’re able to present at application, you may be able to get approved within one business day. Once you’re approved, the money is wired to your bank account in as little as 24 hours!
What Do You Need to Qualify for an Unsecured Business Loan?
Eligibility requirements, rates, and repayment terms depend on the lender. Some lenders may have stricter policies and ask for additional documentation. Below, we’ve listed the information that most lenders ask for:
At Least $10,000 in Monthly Revenue
Lenders use your income to calculate how much you can borrow. That’s why they ask that your business generates at least $10,000 in monthly revenue. The larger your revenue, the more funding you can get. Lenders also ask for proof of income as assurance that you have the cash flow to pay back your loan.
Been in Business for 6 Months or Longer
Lenders typically require that your company be operational for at least six months to qualify for unsecured business loans. This helps lenders meet your financing needs more confidently. They look at how long you’ve been in business to gauge their risk in lending to you. The longer you’ve been in operation, the less risky you’ll seem.
A Credit Score of 550+
Your personal credit score represents your credit history and overall creditworthiness. It has an impact on interest rates and repayment terms you can get. So, the higher score you have, the better. With a lower score, you may pay higher interest rates.
For term loans and business lines of credit, you need a minimum credit score of 550. But if you’re applying for invoice factoring and merchant cash advance, your credit score isn’t a factor to get a loan.
Clarify works with business owners with all types of credit. If you have poor credit, call and speak to an advisor to explore your options.
How Does Clarify Capital Help You Get an Unsecured Business Loan?
At Clarify, we believe that every entrepreneur should have the capital to run and grow their company. That’s why we’ve streamlined our loan application process to make funding quick and easy. We offer no collateral loans with competitive APRs.
Here are just a few ways Clarify is changing the lending industry:
Easy application: Time is your biggest asset. We make the funding process as friction-free as possible with our three-step online application. It takes just a couple of minutes to complete, and you get a dedicated Clarify advisor to help you make an informed decision.
Highest approval rates: We believe that you are more than a credit score or any other requirement. That’s why we help you get the funding you need in as little time as possible. No more waiting weeks to get a decision from a traditional bank.
Term length up to two years: Unsecured business loans with Clarify have term lengths between six months and two years. We also tailor the repayment plan to fit your cash flow and business needs.
No lengthy paperwork: When you work with Clarify, one application gets you access to a marketplace of more than 75 online lenders. This takes far less time and effort than researching and applying to lenders one at a time. Less paperwork and faster funding are what we do.
No collateral requirement: An unsecured business loan is an excellent option if you’re a new business with limited assets to use as collateral. Unsecured loans also lower the risk of your assets being seized in case your business can’t pay the loan.
No hidden fees: Expect transparency when you work with Clarify. We keep the terms simple and straightforward. No hidden fees or vague terms you can’t understand. Plus, your dedicated advisor will walk you through all available options, rates, and term lengths so you know what you’re getting into.
Competitive interest rates: As the largest marketplace for unsecured business loans, we offer competitive interest rates and terms. Our core mission at Clarify has always been to help small business owners like you achieve success in all their endeavors.
Tax deductible: During the tax season, the Internal Revenue Service (IRS) allows you to deduct the interest paid on your business loans. This helps lower your overall borrowing cost.
Prequalifying does not affect your credit score. See all your funding options instantly.
What Can You Use an Unsecured Business Loan For?
Here are the most common ways entrepreneurs use unsecured loans:
Inventory is the biggest expense for many businesses. This is why a large majority of small business owners take out loans to buy inventory. It’s especially true in industries like retail and restaurants where keeping inventory stocked is key to success.
Seasonal businesses also use loans to prepare for upcoming peak seasons when there are higher demands for products.
Many businesses, regardless of size, need equipment to operate and produce products. Equipment needs vary from vehicles to heavy machinery and technology. When they’re not buying equipment, businesses also use loans to pay for the repair and maintenance of equipment.
Operational Cash Flow
One of the most challenging aspects of running a business is managing cash flow. Cash flow gaps can happen for many reasons, such as delayed customer payments or emergencies. In the event of cash flow gaps, entrepreneurs rely on loans to handle day-to-day expenses.
Having access to capital when you need it means smooth operation. Staying afloat paves the way for long-term growth.
Refinancing Existing Debt
Refinancing existing debt is another way business owners use unsecured loans. Often, borrowers consolidate their current debts to lower monthly payments or receive additional funds.
Hire More Employees
At times, companies need to hire new staff to grow their business. When you have growth opportunities available, an unsecured business loan allows you to expand your team. The funding lets you pay salaries and employee training.
Loan funds can be used to buy COVID-19 supplies like personal protective equipment (PPE) and sanitation measures. If the pandemic has impacted your sales, access to additional working capital can help you meet financial obligations in the immediate future.
Other Uses for Unsecured Financing
Here are some more things you can use unsecured financing for:
- Store renovations and improvements
- Acquiring another business
- Paying taxes and payroll expenses
- Digital marketing and advertising
- Paying for emergency repairs
- Opening a new location
- Buying or renting real estate
- Purchasing materials in bulk
- Covering unanticipated business expenses
- Exploring growth opportunities
FAQs on Unsecured Business Loans
Here are our answers to common questions asked by business owners looking to get a loan without collateral.
How Can I Get an Unsecured Business Loan?
The first step is knowing how much you want to borrow. Once you’ve decided on the loan amount, apply online to start the process. You’ll be matched with a dedicated advisor to go through your options, terms, and rates. Unsecured small business loans are easy to get approved for, and you can get money in your bank account the same day.
Can I Get an Unsecured SBA Loan?
When you apply through the Small Business Administration (SBA) programs, such as the SBA 7(a) program, you don’t need to secure loans of up to $25,000 with collateral. But if you’re borrowing more than $350,000, the SBA requires lenders to ask for assets as security for the loan.
What Is the Interest Rate on Unsecured Business Loans?
You can get an unsecured term loan with interest rates starting at 7%. The terms of your loans depend on how long you’ve been in business, your credit score, and your company’s annual revenue.
Can I Get a Business Loan Without Collateral?
Yes, unsecured business loans have no collateral requirements. Uncollateralized funding allows you to borrow money without risking any assets.
Can I Get an Unsecured Business Loan With Bad Credit?
Yes, you can get approved for an unsecured term loan with a credit score as low as 550. If you have a credit score lower than 550, call and speak to a Clarify advisor to explore your options.
Do I Need a Down Payment for an Unsecured Loan?
No, there’s no down payment needed to get approved for loans with Clarify.
How Much Can I Borrow With an Unsecured Loan?
Our lenders provide financing up to $750,000, provided your small business generates at least $10,000 per month in revenue.
What Is the Best Unsecured Business Loan?
The best unsecured loan is the one that provides a solution to your business financing needs. Look for one that offers the best term and rates you can afford. You might want to start your search with short-term loans and unsecured business lines of credit.