Top Fintech Trends Transforming Unsecured Business Lending
February 21, 2025 | Last Updated on: February 21, 2025
By Melanie Lockert
Financial technology or fintech is transforming the unsecured lending landscape. According to the Federal Deposit Insurance Corporation (FDIC ), the definition of fintech is “new business processes that use recent technological innovations to change or improve how financial services are conducted or provided.”
As technology continues to improve, so do many of the processes involved with unsecured business lending. This makes it more accessible to the masses and fosters competition in the marketplace — and the numbers show it.
The estimated value of the unsecured business loans market in 2024 was a staggering $5.0 trillion, according to Research and Markets Unsecured Business Loans Market Report 2024. That number is projected to grow even more. Current estimates show the unsecured business loan market could be $7.67 trillion in 2028. Much of the growth comes from fintech innovation that’s changing the unsecured lending marketplace.
What is Unsecured Lending?
Unsecured lending refers to different loan or financing options that don’t require any collateral from borrowers. Instead, lenders review applicants’ creditworthiness to determine eligibility. In general, that means borrowers need a FICO credit score of 600 to 680 or above. Your business credit score can also come into play when applying for an unsecured business loan.
Lenders take on more risk with unsecured lending, so this type of loan tends to come with higher interest rates. So, you might get the loan amount you want but could have higher monthly payments due to higher rates. Those with good credit or excellent credit typically qualify for lower interest rates.
When looking at financing options, an unsecured business loan can be a good fit for business owners without assets who need a lump sum with manageable repayment terms.
You can find various unsecured lending options from different financial institutions like banks and credit unions. Of course, with the rise of fintech, you can also look for options through a variety of online and alternative lenders.
Here we cover four fintech trends that impact unsecured lending for both borrowers and lenders.
1. The Rise of Online Lenders Offering Unsecured Lending Options
Thanks to financial technology, if you’re looking for an unsecured business loan you don’t necessarily need to go to your local bank branch. Instead, you have a range of online lenders that offer different unsecured lending options. These can include unsecured term loans, business lines of credit, merchant cash advances, or invoice factoring.
Fintech is transforming the unsecured lending experience and making it easier for borrowers to get funding sooner rather than later.
The application process is streamlined for borrowers, and you no longer have to wait days or weeks to know if you’re eligible for business funding.
2. Automated Underwriting
It’s not just online and alternative lenders using fintech for unsecured business lending purposes. The 2024 FDIC Small Business Lending Survey shows large banks are using fintech to engage in automated underwriting when reviewing loan applications for small loans. This uses inputs instead of manual review by humans to help evaluate whether a loan application should be approved or denied.
Underwriting is a comprehensive risk assessment that looks at an applicant’s credit history, finances, and other factors to determine eligibility for a financial product.
According to the FDIC Small Business Lending Survey, automated lending banks use specific information as part of the underwriting process. Here are the factors mentioned in the survey, alongside the percentage of these banks that use the specific metric:
- Personal credit score from a credit bureau (94%)
- Derogatory items on business or personal credit report (90%)
- Willingness to offer personal guarantee for loan (87%)
- Delinquency history on internal accounts (81%)
- Financial strength of owner(s) (78%)
- Cash/liquidity position of business (78%)
- Willingness to offer collateral and qualify of offered collateral (77%)
- Debt service coverage (75%)
- Existing or prior loan relationship (75%)
- Loan-to-value ratio of business (69%)
- Existing or prior deposit relationship (68%)
- Debt-to-worth (67%)
- Overdraft history (62%)
- Market conditions in business’s industry or region (58%)
- Business credit score from a credit bureau (51%)
- Sell cycle (or liquidity) of accounts receivable or inventory (47%)
The survey concludes that large banks rely on hard information from credit bureaus as part of the automated underwriting process to make small loans. The approval time can be faster and thanks to the data, the large banks may be able to offer unsecured lending options, like a no collateral loan.
3. Using Fintech in the Loan Process
The 2024 FDIC Small Business Lending Survey states that 31% of banks use fintech in their small business lending, while 22% are discussing or developing fintech. Banks are using fintech in different ways throughout the loan process. Here you can see what those ways are and the percentage of banks using them.
- Identifying potential borrowers (4%)
- Loan application submission from borrowers (9%)
- Application processing by bank (8%)
- Underwriting and decision-making process (8%)
- Post-decision quality control (anti-fraud) (8%)
- Regulatory compliance (e.g., AML, BSA, or KYC) (21%)
- Closing process (12%)
- Loan funding (5%)
- Loan performance tracking and servicing (12%)
- Portfolio analytics (10%)
Based on the data, you can see regulatory compliance is the top way banks are using fintech. On the other hand, not many banks are using fintech to identify potential borrowers, coming in last.
4. Artificial Intelligence and Machine Learning
Artificial intelligence and machine learning are spearheading the unsecured lending revolution. Many banks and fintech companies are utilizing these tools to evaluate data, mitigate risk, and identify fraud. Complex algorithms and natural language processing models can go through heaps of data.
Thanks to these innovative tools, lenders can:
- Make quick underwriting decisions with AI
- Review alternative data sets
- Verify documents and the loan application
- Customize loan terms on the financial health of the business
- Provide support to customers
- Analyze financial data
- Evaluate credit risk
- Stay in compliance
While some people worry about the threat of AI and the loss of human touchpoints, it can actually help unsecured lending in some ways. Through artificial intelligence and machine learning, lenders can reduce bias and become more inclusive. This helps lenders serve more customers who might typically be overlooked by traditional banks.
Final Thoughts
Business owners looking at unsecured lending options have more choices than ever. Many online lenders are already ahead of the curve with technology. But some banks and credit unions are also using the latest fintech to streamline processes and make it easier for borrowers to apply for a loan. From quick credit approval to fast funding, fintech removes some of the barriers to entry and reduces the time it takes to get the financing you need.
FAQs about Unsecured Lending
Unsecured lending options provide business financing without needing to put up any collateral to back the loan. Here are some answers to frequently asked questions about unsecured lending.
How Do You Get Unsecured Loans?
You can get unsecured loans for business if you have a solid credit profile, minimum annual revenue requirements, and an established business history. To qualify for unsecured business lending, you generally need excellent credit which can also help you score competitive interest rates.
Is It Possible to Get an Unsecured Business Acquisition Loan?
Getting an unsecured business acquisition loan is unlikely, as many lenders require collateral if you want to buy an existing business.
What is an Example of an Unsecured Loan?
Unsecured loan options include student loans, credit cards, unsecured personal loans, and some unsecured business loans. On the other hand, secured loans include auto loans and home equity line of credit, where the vehicle and home serve as collateral for the loan.
What Unsecured Lending Options Are There for Business Owners?
Unsecured lending options for business owners include some term loans, business line of credit, and business credit cards. Qualifying for these options requires borrowers to meet minimum credit score requirements by the lender.
Can You Use an Unsecured Personal Loan for Business?
You may be able to get an unsecured personal loan for business purposes, but it depends on the lender’s policies. Some lenders explicitly prohibit using personal loans for business. Many people use personal loans for debt consolidation to climb out of credit card debt or for things like home improvements.
