Disclaimer: Information in the unsecured business loans articles is provided for general information only, does not constitute financial advice, and does not necessarily describe Biz2Credit commercial financing products. In fact, information in the unsecured business loans articles often covers financial products that Biz2Credit does not currently offer.

If you’re looking to get your startup or small business off the ground, you might not have the business assets to swing it. To move your vision forward, you need to look at various financing options to get capital.

One option is unsecured business funding, which doesn’t require small business owners to put down any collateral. This can be an appealing option and a solid alternative to putting everything on credit cards. But since you don’t put down an asset of value, it’s a higher risk for the lender which means qualifying can be more challenging. Here are six tips to boost your chances of getting approved for unsecured business lending and how it works.

Article Summary:

• Unsecured business funding refers to loans or financing without collateral.
• Collateral is a type of asset that lenders require for secured business loans.
• Banks, online lenders, and the SBA offer unsecured business lending options.

How Unsecured Business Funding Works

Unsecured business funding means that you can obtain a loan or other type of financing without using any type of collateral. Because the loan isn’t secured, and there’s no collateral to fall back on, getting approved may be harder.

When you provide a type of asset, such as cash or business real estate, you use the collateral to secure the loan. This means if you bail on your monthly payments and default on the loan, the lender can seize the form of collateral to make up for the bad investment. This provides more cushion and assurance for lenders.

Additionally, unsecured business loans can have higher interest rates and may come with shorter repayment terms. The loan amount you qualify for may also be a lower amount without any collateral. While these are some downsides, not having your personal assets on the line can be freeing. Before going through the application process, review these tips to get the best chances when applying for unsecured business lending.

Use Your Business Plan to Show You’re A Worthy Investment

Lenders take calculated risks when offering different funding options to business owners. It’s an investment and they want to know they’ll get a return back.

A business plan shows lenders your mission and vision, and how you plan on achieving what you set out to do.

Look at All Your Options

Unsecured business lending can come from:

• Traditional banks
• Online lenders
• Alternative lenders

Look at all your options to get the best interest rates. You want to find a lender who can be a partner and help fulfill your business needs.

Financial institutions tend to offer certain benefits and discounts to existing members. So, if you have a business bank account, you can look into the company’s unsecured business lending options. On the other hand, online and alternative lenders may offer fast business funding and have some flexibility.

Know the What and Why

Requesting an unsecured business loan is more difficult. Without any collateral, the lender is absorbing far more risk than they would with a secured loan and an asset attached to it.

Additionally, come up with a specific amount you need, along with the “what” you need it for and “why". For example, you want $50,000 to upgrade your in-house tech (what) and you don’t have the cash upfront to pay for it (why). Loan purpose is important, so clearly communicate what you intend to do with the funds and how it will benefit your business.

Improve Personal Credit and Establish Business Credit

The measure of your creditworthiness is in your credit score. Those three numbers have a lot of sway and can determine whether you’re approved for unsecured business funding or not. Business owners beginning their journey typically don’t have a business credit score. In that case, lenders look at your personal credit score.

If your credit score is lacking, here’s what you can do to improve it:

• Make monthly payments on time
• Use less than 30% of your credit limit
• Keep new credit applications to a minimum
  
  This can help you meet the basic minimum credit score requirements and qualify for the best unsecured business loans.
  
  Establishing business credit is also beneficial but can take time. Start by incorporating your business and registering with the business credit reporting agencies. Like personal credit, make on-time payments and responsibly manage credit and loans. Even if you do establish business credit, lenders may still look at your credit score and could require a personal guarantee.

Stay Organized

You’ll need to provide information and documentation when you apply for unsecured business funding. To expedite the process, stay organized and on top of your business and financial matters.

Lenders typically have a revenue requirement, so make sure bookkeeping is clean and up-to-date. Keep tax and other business documents organized. Make sure you stay in good standing with the Internal Revenue Service (IRS) and that any business licenses or agreements are current.

Create a checklist of the documents your lender might need. Use a separate folder to keep all of them together, so that when it’s time to apply you have everything ready.

Apply for What You Can Afford

A business loan can be a lifeline. But it’s still a commitment that requires monthly payments for years. The interest adds to the cost of the loan. If you have bad credit, those costs will be even higher.

To make sure you’re thinking of your financial future as well as your present, only apply for what you can afford to repay. Short-term needs are important, but so are long-term needs. The last thing you want to do is ruin your cash flow later on because of the costs related to the loan.

You can use tools like online calculators to review prospective monthly payments, interest charges, and total costs.

Types of Unsecured Business Financing

If you need fast business funding with no collateral, you have different unsecured business funding options to look into:

• Term loans. You get a lump sum to use in your business and repay over a set term.
• Merchant cash advance (MCA). This provides business financing with a cash advance that you repay with a set percentage of your credit and debit sales.
• Unsecured small business loans. Some SBA loans have no collateral requirements.
• Business line of credit. An unsecured business line of credit allows you to access a draw from a set credit limit without collateral. It’s more flexible and allows you to repay what you use and borrow again in the future.
• Business credit cards. Credit cards are a common type of unsecured business funding that allows you to pay for expenses without any collateral.

Invoice factoring. If your small business invoices clients, you can get funding through invoice factoring. You use your unpaid invoices and sell them to a specific factoring company. You’ll get a percentage of the invoice total in exchange for paying a fee. Customers then pay the invoice factoring company. 
 
All of these options have different benefits and drawbacks to consider. Some provide more flexibility, while others are better for getting cash in the short term. Evaluate your business needs and the amount of funding you’d like to help you make the right decision.

Alternative Business Financing Options

There are many types of business loans and financing to support you on your entrepreneurial journey. But there are alternative financing options to look into including:

• Get the power of your community together to support you through a strategic crowdfunding campaign.
• Business grants. Depending on the type of business you have, such as a nonprofit, you might be eligible for business grants. These can come from your state government and the federal government, as well as private foundations.
• Peer-to-peer lending. You can connect with potential investors who can provide working capital to keep your business afloat.

Final Thoughts

Unsecured business funding can fill the gaps in your budget. Getting approved for it can take some work, without any collateral. Using these tips and recommendations, you can improve your approval odds for an unsecured business loan.

Of course, there are no guarantees and each lender has different underwriting criteria. Your best bet is to see if you can get pre-qualified. If you don’t get approved for the type of business financing you’re applying for, consider other options on the market.

Frequently Asked Questions (FAQs)

What Is Unsecured Business Funding?

Unsecured business funding is a type of financing that doesn’t require collateral. So you don’t need an asset like cash or property to secure a loan, making it unsecured. Compared to secured business loans, unsecured loans generally have higher APRs and shorter repayment terms.

Can You Get A Business Loan With No Collateral?

You can get some business loans without putting down any form of collateral. The Small Business Administration (SBA) has some loan options that don’t require collateral.

What Are The Typical Interest Rates For Unsecured Business Funding?

The Annual Percentage Rate (APR) you get depends on your credit history, loan amount, and repayment term. Your interest rate is a major factor that contributes to the total cost of the loan.

What Are The Requirements For Securing An Unsecured Business Loan?

The eligibility requirements to get an unsecured business loan depend on the lender. In general, you need a good credit score, sufficient annual revenue, and years in business.

Frequent searches leading to this page

unsecured loan for business, business funding unsecured, unsecured small business loans, unsecured loans small business