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.

Unsecured business loans can help small business owners access funding without putting any collateral on the line. While there are always risks when taking on financing, you can use your unsecured business loan to your advantage. Getting one of the many financing solutions on the market can boost your business growth and credit history. Find out the benefits of unsecured small business loans and how to make the most out of them.

Article Summary:

• Unsecured business loans offer funds without any collateral requirements.
• Getting an unsecured business loan offers potential benefits to your cash flow and credit.
• Business owners have many different options to choose from.

You Have Loan Options

Business owners have a range of options when looking for unsecured business loans. This type of loan can come in many different shapes and sizes.

• Unsecured small business loans. You can look into unsecured small business loans from traditional banks or online lenders. Loan amounts, repayment terms, and interest rates, and eligibility requirements vary by lender. Sometimes called term loans, these options provide a lump sum with a set term to repay the loan.
• SBA loans. The Small Business Administration (SBA) supports small businesses by offering various loans, some of which are unsecured .
• 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 with a business credit. A pro is that you can build your business credit score. A downside is the higher interest rates.
• Unsecured business line of credit. Similar to a credit card, a business line of credit allows you to draw from your credit limit and continue to use and borrow as needed.
  Unsecured business loans aren’t cookie-cutter and you have the flexibility and options to choose what works for your business needs. Some options have fewer qualification requirements and are easier to get than a traditional bank loan.

Quick Access

Some unsecured small business loans offer quick access to funds. That way you get the money into your bank account faster, so you can fill any budget gaps which is crucial if it’s time-sensitive.

While some lenders like the Small Business Administration may have a longer processing time, online lenders typically offer fast business funding. Without any collateral, you can go through the application process and get your loan amount without putting real estate or other business assets on the line.

Small and Large Loan Amounts

Whether you need a small loan amount or something larger, unsecured business loans can help you with funding. The SBA has microloans of up to $50,000, but the average loan amount hovers around $13,000.  Some lenders offer up to several hundred thousand dollars.   Given the range of amounts, you can borrow only what your business needs.

May Help Personal Credit and Business Credit

Your creditworthiness can mean the difference between getting approved or denied for business financing. Oftentimes, your personal credit is under the microscope from lenders even when applying for an unsecured business loan. But if you’re approved and continue to make payments, a business loan may help your personal credit and get your business credit on the map.

Improving your personal credit can help you qualify for lower interest rates on other types of loans or credit products. Establishing your business credit can be a useful way to create a boundary between your personal and business credit. Just be aware that even if you end up using your business credit in the future a lender may still require a personal guarantee from you.

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). 

If you have bad credit, the most important thing you can do is to make monthly payments on time. Maintaining low balances relative to your credit limit can also help. If your credit is strong, you have a higher chance of being approved for the best unsecured business loans on the market with competitive interest rates.

Stabilize Cash Flow

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

While getting a business loan can improve cash flow immediately, there’s another side of the coin. 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.

Tips for Getting Approved for Unsecured Business Loans

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. 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:

• Have a clear business plan
• Know your annual revenue
• Get a business bank account
• Build a business credit history
• Improve personal credit history
• Know the loan purpose
• Have a clear loan amount

Some lenders may let you see if you’re prequalified without a hard inquiry. No hard inquiry means no impact on your credit score.  

Look Into Alternatives

If unsecured business loans aren’t a good fit right now or you’re having trouble getting approved, you have alternatives. You can still get business financing without collateral.

• Merchant cash advance (MCA). Through a merchant cash advance, you can get a cash advance and repay the sum through a percentage of credit and debit transactions.
• Invoice financing. You can turn your unpaid invoices into upfront cash with invoice financing. This option gives you cash upfront, typically 75% to 90% of the invoice value.
• Invoice factoring. In this case, you can take your unpaid invoices and sell them 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 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 comes with 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.

FAQs about Unsecured Business Loans

What Are The Advantages Of An Unsecured Loan?

The advantages of an unsecured loan are that you can access a lump sum, without any collateral requirement and you may get funds faster. If you repay on time, it could also improve your credit.

What Would You Use An Unsecured Loan For?

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

What Can A Small Business Loan Be Used For?

How your small business loan can be used depends on the lender and type of loan program. For example, the SBA has different types of loans with different loan purposes.

Can You Use A Business Loan For Personal Reasons?

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

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