How Much Can You Borrow with an Unsecured Business Loan? Key Factors Explained
February 20, 2025 | Last Updated on: February 20, 2025
By Melanie Lockert
The cycle of business is full of ebbs and flows. To keep everything running smoothly in the down times, you might need financing to help with cash flow and expansion. When reviewing your financing options, you can typically choose from secured or unsecured options. Business owners with limited business and personal assets may not qualify for secured financing. However, unsecured business lending options might be the right solution.
What is Unsecured Business Lending?
Unsecured business lending refers to financing with no collateral requirements. When borrowers apply for business financing, lenders review various factors to determine eligibility. Some financing options require you to “secure” the loan with collateral, or an asset that backs the loan. Unsecured business lending options don’t require borrowers to provide collateral to receive financing.
No collateral business loans are riskier for lenders, because there’s no asset to go after if the borrower defaults on monthly payments. Unsecured business loans may be more convenient for borrowers without assets. However, because they’re unsecured loans, borrowers may face higher interest rates and smaller loan amounts.
Types of Unsecured Business Lending and Loans
Unsecured business lending comes in different forms. The funding option that is best for you depends on your business needs and short-term and long-term goals. Types of unsecured business financing include:
- Term Loans. Business owners looking at unsecured business lending options can check out term loans. Term loans provide capital upfront with a lump sum. Then, you repay what you borrow during a specific term. Getting an influx of funds can help improve your cash flow and take your business to the next level. Banks and online lenders provide term loans but typically have different eligibility requirements and business funding timelines.
- SBA Loans. The Small Business Administration is a government agency that offers a range of resources to small business owners, including SBA loans. The agency provides different loan options including 7(a) loans, 504 loans, and The SBA works with various lenders and backs the loans, making them more accessible. It's important to note that most SBA loans require collateral. However, under the SBA 7(a) program, loans of $50,000 or less typically do not require collateral, though personal guarantees may still apply. This distinction is crucial, as larger SBA loans almost always involve collateral requirements.
- Business line of credit. One unsecured business lending option that provides borrowers with flexibility is a business line of credit. Banks approve you for a credit line that you can use as needed. You can draw upon the limit and repay what you owe. At that point, the full credit line is available to you. This differs from a traditional unsecured business loan which gives you a lump sum upfront. Using a business line of credit, you can access a specific amount but only repay what you use.
- Business credit cards. You don’t need to provide any collateral to get approved for a business credit card. Using this as a business financing tool can help you cover costs if you’re in a pinch. Unlike a loan which offers you funds upfront, you’ll get access to credit lines to draw from. This is a form of revolving credit, so you can continue to access the line of credit as you repay what you owe. While this is a convenient form of business financing, borrowers with bad credit can expect higher interest rates compared to other financing options.
Factors That Impact How Much You Can Borrow
If you’re pursuing unsecured business lending options, the amount you qualify for depends on many different factors. Without the assurance of collateral, lenders need to carefully evaluate if you have the track record and resources to repay a business loan. Here is a breakdown of various factors that can impact how much you can borrow.
Loan Purpose
One of the primary factors lenders look at is your loan purpose. In other words, how will you use the funds? Whether it’s to keep your business afloat or grow it to greater heights, you need to be crystal clear on your intentions.
Have your business plan ready with a clear outline of operations and financial projections. The right documentation and loan purpose can only help you in the application process.
Lender Eligibility Requirements
If you’re looking into unsecured business lending, the amount you can borrow varies widely by lender. Each lender is unique and has different eligibility requirements you must meet to get approved for a business loan.
Your creditworthiness impacts how much you can borrow, and the minimum and maximum loan amounts set by the lender.
For example, some unsecured business loan minimums start at $10,000 while others are at $25,000. Maximum loan amounts vary, with some unsecured business loans capping out $1 million.
How Long You’ve Been in Business
Unsecured business lending is inherently risky. Lenders don’t have collateral to fall back on if you miss out on your monthly payments. Secured business loans don’t come with the same level of risk for lenders.
When you apply for an unsecured small business loan, you’re an unknown entity to most lenders. So they’re taking a gamble on you. To help show you’re legitimate with a proven track record, lenders evaluate time in business.
Startups and new businesses have a high probability of failing. Based on that, lenders may set a certain time in business you must meet. For example, two years. Lenders want to know if your business has a strong enough foundation before approving you for a loan. Biz2Credit requires applicants to be in business for a minimum of 18 months.
Personal Credit Score
Your FICO credit score gives lenders a glimpse into your creditworthiness. While it’s just a three-digit number, it gives lenders an idea of your behavior as a borrower.
Higher scores typically show you make payments on time and know how to manage debt. Lower scores could mean missed payments, over-borrowing or applying for too much credit. To qualify for unsecured business lending, you typically need a credit score of 600 to 680. Five factors make up your FICO credit score. But the bulk of it comes from your payment history (35%) and your credit utilization or amounts owed (30%). To get your credit in shape, make monthly payments by the due date. You also want to be mindful of your borrowing habits and use a small percentage of your credit limit.
You can keep tabs on your credit report, which includes the information that determines your credit score at AnnualCreditReport.com.
Business Credit Score
If you’ve already established business credit and are looking into unsecured business lending options, the lender will evaluate your business credit score. While similar in scope, business credit scores use a different scoring system than your personal credit score. Some of the credit bureaus overlap, but not all. The major business credit bureaus are Experian, Equifax, and Dun & Bradstreet. As a business owner, it’s always a smart idea to keep your personal finances and business finances separate. If possible, it’s a good idea to separate your personal credit from your business credit as well. Having a business credit history may help keep things separate if you’re applying for a business loan. However, lenders often want a personal guarantee so you’re still responsible for the loan repayment.
Annual Revenue
If you want to apply for an unsecured loan, another factor that determines how much you can borrow is your annual revenue. In the world of unsecured business lending, your revenue can give lenders an idea of what you can afford.
Lenders want to ensure they’re going to get a return on their investment in your business. So, you need to provide proof you can afford the payments. One way to do that is by looking at your annual revenue, reviewing business assets, and financial statements.
Your annual revenue may impact your loan amount. However, you must also meet the lender’s minimum annual revenue requirements to qualify. These are set by the lender and differ from company to company.
How to Apply for Unsecured Loans
If you need working capital or funds to expand your enterprise, here’s how to apply for unsecured business lending options.
- Review financing options. Research the different unsecured business lending options to decide what best fits your business needs. To help decide, understand how much you need, what funds will go toward, flexibility, and the structure of the loan (for example lump sum vs. a line of credit).
- Compare loan offers. After you decide what loan product is best, compare options from multiple lenders. Do a side-by-side comparison of interest rates, origination fees, repayment terms, and any applicable fees. Choose the right lender for your situation.
- Provide documentation. To apply for unsecured business financing, you need to provide documentation. Each lender has different requirements. But it’s a good idea to have your financial statements, tax returns, profit and loss statements, business plan, and licenses ready.
- Apply for unsecured business financing. You can typically apply online and submit the appropriate documentation to apply for an unsecured business loan. If applying with a traditional bank, you may go to a local branch.
- Get funds. After approval and processing of the application, you’ll typically receive funds in your business checking account information. Funding timelines differ.
Final Thoughts
Unsecured business lending benefits borrowers who don’t have assets when applying for a loan. However, there are some natural risks for lenders with this type of financing, which affect your loan terms, rates, and loan amount. Additionally, other key factors like your creditworthiness and business revenue all influence how much you can borrow. Getting your business finances and credit in shape before applying can put you in the best position for a loan.
FAQs about Unsecured Business Lending
What Credit Score Do You Need for an Unsecured Business Loan?
To qualify for an unsecured business loan, you typically need a minimum credit score of 600 to 680. However, some alternative lenders may accept a lower score, while traditional banks may require a higher score.
Are No Collateral Business Loans Available?
No collateral business loans are typically available from online and alternative lenders. The Small Business Administration doesn’t require small business owners to put down collateral for loans up to $50,000. Another option is to look into business credit cards.
Am I Eligible for Small Unsecured Loans?
You may be eligible for small unsecured loans through online lenders that offer business financing. An unsecured business line of credit may also be available from a traditional bank. The Small Business Administration (SBA) also offers small unsecured loans.
Do Secured or Unsecured Loans Have Higher Interest Rates?
In general, unsecured loans have higher interest rates than secured loans. Since secured loans have collateral that a lender can seize, it reduces the risk for lenders. In turn, it can lead to lower interest rates and more favorable terms.
Is a Secured Business Loan Less Risky?
A secured business loan is typically less risky for lenders, but not necessarily for merchants or borrowers. Lenders can take the collateral if you default on the loan.
