Growing a business is challenging, and many business owners may find they’re unable to scale without an infusion of capital. Small business loans can help you open a new location, acquire inventory, purchase equipment, hire new staff, and much more, but if you only have a fair credit score, you may struggle to get the best loan terms or find unsecured loans for fair credit.

Lenders evaluate borrowers based on a variety of financial and business factors. Still, credit score is a crucial component in determining a loan’s annual percentage rate (APR), repayment terms, and necessary collateral.

Finding unsecured loans for fair credit can be difficult, but it’s not impossible.

In this article:

• Benefits of unsecured business loans
• How fast business loans can help your company grow
• How to get approved for an unsecured loan for fair credit

What is an Unsecured Business Loan?

Business loans are either secured or unsecured. A secured loan means that a loan is protected from default by collateral. With a secured loan, a lender like a bank or credit union makes the loan approval contingent on the borrower providing a business or personal asset as collateral, which the lender may repossess if the borrower defaults on the loan.

An unsecured loan does not require collateral, although it may still require a personal guarantee that you’ll repay the loan with personal assets if the business cannot.

While they’re easier to get with good credit, it’s certainly not impossible to get an unsecured loan for fair credit.

Small Business Loan Options

Small businesses have many potential loan options, whether you have excellent credit or only a fair FICO score. Both traditional financial institutions and online lenders offer unsecured business loans, with online lenders often specializing in business loans to get your company a cash infusion fast.

There are several types of unsecured business loans available:

• Term loans: The traditional loan type offers loan funds upfront in exchange for repayment, plus interest over time. Minimum loan amounts, repayment terms, interest rates, and eligibility requirements vary by lender. Still, if you shop and compare, you may be able to find compelling unsecured loans for fair credit.
• SBA loans: The U.S. Small Business Administration (SBA) supports small businesses by offering various loans, some of which are unsecured. Minimum credit score requirements and other qualifying terms are usually higher with SBA loans.
• Business credit cards: A business credit card can be a flexible and immediate option to handle short-term needs. You typically don’t need to put up any valuable assets as collateral, making a business credit card like an unsecured loan for fair credit. While interest rates tend to be higher, you can use a credit card to improve a lower credit score.
• Business lines of credit: Similar to a credit card, a business line of credit allows you to draw from a pre-approved credit limit and continue to use and borrow as needed.
  Unsecured business lines of credit offer the flexibility to choose what works for your business needs. Some options have fewer qualification requirements and are easier to get than a traditional bank loan. Although they won’t have the lowest rates, they’re an accessible alternative to an unsecured loan for fair credit.

Benefits of Unsecured Business Loans

You’ll always be subject to a credit check during any loan application process. It’s a good idea to go through the prequalification process before applying to know which lenders may be willing to work with you despite credit card debt or only a fair credit score.

Flexibility

Depending on the type of loan, unsecured loans can offer excellent flexibility for fair credit borrowers. For instance, even if you’re working with a high-interest business line of credit, you’ll still have the flexibility to access capital when needed and, since you haven’t put any collateral down, you don’t risk forfeiting assets if you make late payments or default.

Lines of credit effectively operate as fast business loans and if you maintain a strong payment history and avoid excessive new credit, you’ll see an increase in your credit score that may make your business eligible for better loan terms later.

Quick Access

Some unsecured loans for fair credit offer quick access to funds. If you’re dealing with a time-sensitive matter, fast business loans that don’t require collateral can be a major boon for your business.

While some lenders like the Small may have a longer processing time, online lenders typically offer fast business funding. Occasionally, online lenders can offer such fast funding that you have the money in your checking account the next business day. Without any collateral, you can go through the application process and get your loan payment without putting real estate or other business assets on the line.

Small and Large Loan Amounts

There may be limits to the loan amount you can get for an unsecured loan with fair credit, but that may be a quiet advantage. Just like a personal loan, you don’t want to overextend and borrow more than you can afford to repay.

SBA Microloans, for instance, offer funds up to $50,000, but the average loan amount is about $13,000. For a business, that may seem like a small amount, but it can help address a variety of business needs while incurring little risk, especially if you need to do some debt consolidation before pursuing something larger.

Credit Score Improvement

Your creditworthiness can mean the difference between getting approved or denied for business financing. Yes, you may get an unsecured loan for fair credit or even bad credit, but your loan offers may be limited. Should you secure a loan, however, you’ll reap the benefits of not only getting the money, but as long as you repay it on time and avoid late fees or prepayment penalties, your credit score should increase.

Improving your credit can help you get through credit inquiries in the future to qualify for lower interest rates on other types of loans or credit products.

To keep tabs on your credit, you can access your personal credit report at AnnualCreditReport.com. The business credit bureaus are Experian, Equifax, and Dun & Bradstreet (D&B).

Cash Flow Stability

Entrepreneurs know the struggle of having unpredictable cash flow. This can be even more severe for new businesses. A cash injection from an unsecured small business loan can help stabilize cash flow. Having that money allows you to focus on growing your business to become more profitable.

However, while getting a business loan can improve cash flow immediately, there are risks. If you don’t budget for the monthly payments or have a plan in place, the debt could hurt your cash flow in the future.

Before signing on the dotted line for any loan, use an online calculator to review prospective monthly payments. Additionally, understand how interest rates add to the cost of the loan, which means you could be paying back much more than you borrow.

How to Get Approved for an Unsecured Loan for Fair Credit

Unsecured business loans can be attractive to business owners. You don’t have to use collateral, potentially putting your assets at risk. On the flip side, without collateral, lenders take on more risk.

Because of that, it can be more challenging to get unsecured business loans for fair credit or bad credit. Regardless of your credit score, expect higher interest rates since there’s nothing “securing” the loan. To improve your shot at getting approved for a business loan:

• Provide a clear business plan to the lender
• Know your current annual revenue and future projections
• Have a business bank account
• Know the loan purpose and show the lender how you plan to use the money
• Have a clear loan amount and don’t ask for more than you can afford
• Know your debt-to-income ratio and be prepared to discuss debt consolidation loans if working with a familiar lender

Some lenders may let you see if you’re pre-qualified without a hard inquiry. No hard inquiry means no impact on your credit score.  If necessary, you could also get a cosigner with better credit, as long as they’re a business partner. 

Alternatives to Unsecured Business Loans

If unsecured business loans aren’t a good fit right now or you’re having trouble getting approved, you have alternatives that may function like instant business loans. You can still get business financing without collateral. Some options include:

• Merchant cash advance (MCA). With a merchant cash advance, you can get a cash advance and repay the sum through a percentage of future estimated receivables.
• Invoice financing. With invoice financing, you can turn your unpaid invoices into upfront cash. This option gives you cash up front, typically 75% to 90% of the invoice value.
• Invoice factoring. In this case, you can sell your unpaid invoices to a third-party factoring company. The company essentially takes over the invoices and collects payments from customers and gives funds upfront.

Final Thoughts

Unsecured business loans for fair credit can be a tool for growth or a way to get your business off life support, depending on your situation. There are different types of loans, giving you flexibility and customization. When used properly and responsibly, getting an unsecured loan has many benefits. So long as you can pay it back and use it as a tool, it can help revive or recharge your startup or business.

That said, the specifics of any loan arrangement will vary for each borrower and situation, so it’s always wise to consult a professional before pursuing an unsecured loan.

FAQs about unsecured loans for fair credit

What are the advantages of an unsecured loan?

An unsecured loan for fair credit gives you access to necessary business capital without putting up any business assets as collateral. The lack of collateral may facilitate faster funding and paying the loan back on time will improve your credit.

How can you use an unsecured loan?

An unsecured loan can be used as working capital and for a range of business expenses. Unlike secured business loans, it offers flexibility without the commitment of putting down any collateral.

Can you use a business financing for personal reasons?

No, you can’t use business financing for any personal reasons. A business loan is for business purposes and expenses.

If I need a business loan but only have fair credit, can I get one?

Yes, you may get an unsecured loan for fair credit. You’ll likely have to do a bit more loan shopping and you’ll want to prequalify with a lender before submitting to a hard credit check, but provided you have a clear business plan and purpose for the loan funds, lenders may be more willing to offer you an unsecured loan despite lackluster credit.

What are the alternatives to a small business loan?

Some alternatives to small business loans include business credit cards, business lines of credit, merchant cash advances (MCAs), or invoice financing.

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