5 Signs Your Business Is Ready for an Unsecured Business Loan
February 19, 2025 | Last Updated on: February 19, 2025
By Nick Perry
Being a small business owner means constantly juggling day-to-day operations and long-term goals. With so much going on in your immediate timeline, it can be hard to earmark money to plan for the future. However, your business needs capital to grow, which is why many entrepreneurs turn to small business loans.
While loans can increase cash flow, help finance growth, and navigate financial difficulties, some business owners don’t want to put up business assets as collateral to secure loans. If your business is in good shape, you may be eligible for unsecured loans that do not require collateral. From business expansion loans to unsecured business lines of credit to support flexibility, there are several unsecured financing options that can help your business.
Here, we break down when it’s the right time to pursue an unsecured business line of credit or other unsecured funding and the best options available to you.
In this article:
- How to identify when your business is ready for funding
- The best funding options for your business, including unsecured business lines of credit, low credit score business loans, and more
- How to get an unsecured business loan
What is an unsecured loan?
An unsecured loan is a type of financing that does not require collateral. Often, lenders require borrowers to put up business or personal assets as collateral to secure a loan. If you default on the loan, the lender may seize these assets.
An unsecured loan does not require collateral, but it usually does require a personal guarantee. That means you’ll pay the remaining loan principal from your personal assets if the business defaults on the loan. Usually, unsecured loans have stricter eligibility requirements, higher interest rates, and less favorable repayment terms than secured loans.
There are many types of unsecured loans, including term loans, U.S. Small Business Administration (SBA) loans, and unsecured business lines of credit, each of which may have advantages for different business situations. Some loans, like commercial real estate or equipment loans, are secured by the assets they finance, so you don’t have to put up additional collateral.
Signs your business is ready for an unsecured loan
Whether your business doesn’t have assets to offer as collateral or you’re not willing to offer them, that shouldn’t keep you from pursuing a loan to meet your business goals. Whether you’re interested in leveraging a business expansion loan, a business loan to buy a business, an unsecured business line of credit, or other financing options, these are some key indicators that your business is ready.
Your business doesn’t need financing
You’re more likely to qualify for unsecured financing when your business is profitable and debt-free. It sounds counterintuitive, but the best time to apply for an unsecured loan is when your business doesn’t really need financing but could still use it to grow. Lenders are more willing to provide funding without collateral to profitable, proven businesses. When cash flow is high and your expenses are low, it’s a great time to capitalize on a business boom to create sustainable growth.
If you’re a business owner with bad credit, great business financials can also help you get low credit score business loans that you might not qualify for otherwise.
You’re turning down new business
When you’re at your service capacity, it’s an indicator that your business is doing well enough that you may qualify for unsecured financing. You have the customer demand, you just need to hire more staff, acquire more equipment, purchase more inventory, or increase production to meet it. That’s where an unsecured business line of credit, loan, or other financing comes into play.
You lack an emergency fund
Some business owners reinvest almost all profits into the business to keep fueling growth. While this is a great way to grow your business without taking on debt, it can expose your business in the event of an economic downturn or financial emergency. Having an emergency fund that can cover at least three months of operating expenses is always a good idea. Investing heavily in short-term growth can risk long-term stability. An unsecured business line of credit can be a great safety net if you don’t have an emergency fund.
Still, a growing business that doesn’t have a lot of debt is a good candidate for an unsecured loan, especially if you have good credit. Funding options like an unsecured business line of credit can give you a loan amount to fall back on during seasonal fluctuations or unexpected expenses.
If you’re expanding your space or purchasing new equipment
Commercial real estate or equipment loans are technically unsecured loans because they don’t require additional collateral beyond the financed assets themselves. While you may use funds from a term loan, SBA loan, or unsecured business line of credit to cover a range of expenses, if you’re specifically looking to acquire a new brick-and-mortar space or equipment, you should explore loans designed for these business purchases.
Whether you’ve outgrown your current space or you’re ready to expand production or services, unsecured financing can help.
You’re still new
Getting startup capital can be challenging through traditional means. Most traditional lenders, like banks and credit unions, want to see a certain amount of time in business and a profitable track record, especially for unsecured financing. All business financing is subject to credit approval and positive financial disclosures, and your chances of qualifying are higher if your business is thriving.
While that’s all true, new businesses usually don’t have much in the way of assets to offer as collateral. Business owners with an established entrepreneurial track record and an excellent business plan, however, may be able to accept less favorable loan terms to get the capital they need to grow quickly.
Types of unsecured business financing
If you feel your business is ready for an unsecured loan, the next step is understanding what types of unsecured funding are available. Some of the most common options include:
- Term loans: Upfront lump sum deposits to your business bank can give you both short-term or long-term financing but qualifying without collateral will require excellent credit and business financials.
- SBA loans: Loans backed by the U.S. Small Business Administration don’t always require collateral, but they do require a personal guarantee for the loan principal not guaranteed by the SBA. Eligibility requirements are strict.
- Unsecured business lines of credit: Most lines of credit are unsecured and offer you a maximum line amount to draw from when you need cash. A revolving line of credit allows you to draw funds into your business checking account, repay the principal, pay interest, and regain access to the full amount. It’s flexible funding without fixed monthly payments. A secured business line of credit may offer lower interest rates.
- Business credit cards: Most credit cards are unsecured, and many banks have compelling credit offers like 0% introductory APR and other perks.
- Merchant cash advances (MCAs): These commercial arrangements between businesses offer fast funding when you need it. In exchange for upfront cash, you agree to repay the MCA provider with a percentage of future credit or debit card sales until you reach a pre-negotiated repayment amount determined by a factor rate. Funding may be secured in just a couple of business days.
How to get unsecured business funding
Getting approved for an unsecured business loan isn’t always easy. To bypass a collateral requirement, you’ll usually need to have excellent business or personal credit, strong financial statements, or a significant down payment. You’ll also usually have to be willing to pay a higher interest rate or shorter repayment terms than you would with a secured loan.
If you still feel that unsecured financing is the best option for you, here’s a step-by-step process, whether you’re applying for a term loan or unsecured business line of credit.
- Determine funding needs: How much capital you need, how fast you need it, and how you plan to use it will all influence the type of funding you pursue. If you need a small amount of fast, flexible financing, an unsecured business line of credit is a good option. If you need a business loan to buy a business or a business expansion loan, you should explore term loans or SBA loans.
- Compare lenders: Depending on your personal finance and business finance details, you may have access to many or very few lenders and loan products. It’s crucial to spend time shopping and comparing to find the best option for your business.
- Gather documentation: Different lenders and financing options have different requirements, but generally you will need basic business information, a business plan, financial statements, and tax returns.
- Apply: Depending on the funding type, the loan application process may take a few days or up to a few months. Online lenders tend to offer faster financing times than traditional lenders and unsecured loans tend to have faster underwriting than secured ones since there’s no need for a collateral appraisal.
Final thoughts
From unsecured business lines of credit to long-term business loans, unsecured financing is a great option for entrepreneurs who lack the ability or desire to use assets as collateral for a loan. Unsecured financing isn’t available to everyone, and it may be difficult to know when it’s the right option for your business. This guide will help you identify when it’s the right time to pursue unsecured financing.
FAQs about unsecured business loans
What is an unsecured business loan?
An unsecured loan is one that does not require collateral. These loans typically still require a personal guarantee, but you don’t risk losing business or personal assets if you default on the loan. They often have higher interest rates and stricter repayment terms than secured loans but are good options for entrepreneurs unwilling to risk assets.
How do I qualify for an unsecured business loan?
Not all business owners or businesses will qualify for an unsecured business loan. Typically, you’ll need strong creditworthiness, business revenue, and a proven business track record to qualify. That said, options like unsecured business lines of credit or credit cards are much easier to qualify for.
What do you need to apply for unsecured financing?
Each lender has its own application requirements for different loan products, but usually you’ll need at least a business plan, business financial statements, and tax returns.
How can I use unsecured financing?
There’s no difference in how you can use unsecured or secured financing. Certain loan products, like commercial real estate or equipment loans, are tied to specific assets, but business financing like term loans and lines of credit allow you to use the money for just about any business need.
What’s the difference between a secured business line of credit and an unsecured business line of credit?
Like unsecured and secured loans, the difference is just collateral. If you want a very high credit limit or lower interest rates, you might offer collateral to secure the loan amount. However, it’s not always necessary to offer collateral to get approved for a line of credit.
