Unsecured business loans are highly desired, and for good reason. If the borrower defaults on a payment, their assets aren’t at risk… right away.
With unsecured business loans, you do not need to stake collateral against the money you borrowed. In a secured loan, or collateralized loan, you do need to put up assets to help lessen the risk the lender is taking in letting you borrow money. Assets are commonly real estate, vehicles, or large equipment and machinery, but can also be other forms of property such as marketable securities, invoices, and other cash or non-cash items.
Some business owners would rather not risk their other property on a loan and search for an unsecured business loan. However, unsecured doesn’t always mean it’s the best option. A secured loan might be offered because a low credit score labels a business as risky and a safety backing is needed. Or, a secured loan might be offered because it comes with lower rates and longer terms, or even higher amounts. This security can allow the lender to offer more preferable rates and terms.
Additionally, an unsecured business loan does not mean your possessions are untouchable, they are just harder to get. Should you default on payment on unsecured business loans, the lender cannot immediately seize your property, however with due legal process, they may still be entitled to recouping their losses.
If you see no reason why you wouldn’t be able to make your payments, then a secured business loan can help save you money on interest. If you prefer an unsecured business loan, here’s everything you need to know including the top unsecured business loans.
Minorities Unsecured Business Loans
A 2010 study done by the Minority Business Development Agency titled “Disparities in Capital Access between Minority and Non-Minority-Owned Businesses” determined that minority-owned firms are more likely to be denied loans.
Among firms with gross receipts under $500,000, loan denial rates for minority firms were at 42% compared to those of non-minority-owned firms at 16%. For high sales firms, the rate of loan denial was almost twice as high for minority firms as for non-minority firms
Loan rejection and acceptance comes down to the bank qualifications. Banks require large amounts of collateral, high credit scores and strong revenue, which can be hard to obtain depending on your socioeconomic standing. Despite small businesses being a vital part of the economy of diverse communities, banks do not commonly give out loans to these minority-owned businesses. Unsecured business loans for minorities are increasingly common for these reasons.
Top Unsecured Business Loans
Whether you don’t have any assets to pledge or you simply don’t want to, the top unsecured business loans can get your business the capital it needs to grow without staking valuable property. Every provider will have different requirements and offers. Here are the top unsecured business loans for you to compare options:
Kabbage offers unsecured business lines of credit ranging from $2,000 to $250,000. This fast funding comes at rates of 1.5% to 10%, and keep in mind with a business line of credit, you only pay interest or advance fees on what you borrow. To qualify, your business will need to be minimum one year old with minimum $50,000 in annual revenue. Credit scores of 550 are accepted, so it’s okay so have poor credit. While Kabbage is an unsecured business line of credit, a personal guarantee is required. This means that your personal assets could be seized if you default on a payment and your business does not have enough assets to pay pack the lender.
OnDeck Capital offers both short-term unsecured business loans and unsecured lines of credit. Financing from $5,000 to $500,000 can be put in our bank account in a matter of days with interest rates range from 13.99% to 36%, or as low as 9% if you’re a strong borrower offered their special prime rate. Loans range from three to 36 months, but if you decide to pay off your loan early you will still owe the full interest amount. OnDeck requires a minimum of one year in business with annual revenue of $100,000. Compared to Kabbage, you can get more money for lower rates, but you’ll still need to sign a personal guarantee in case your business defaults.
While BlueVine is well known for its invoice-backed financing, the funder also provides unsecured business lines of credit for up to $250,000. You’ll need to have been in business for at least six months with a minimum credit score of 650 and minimum $100,000 in annual revenue. BlueVine has weekly or monthly repayment options over terms from six to twelve months and simple interest as low as 4.8%. This financing is unsecured, but BlueVine will still need some time of security when lending out $5,000 to $250,000. To do this, the funder requires a personal guarantee as well as a blanket UCC filing. A blanket UCC means if your business goes under, they are first in line to collect your business assets before anyone else who provided your business with financing.
Startups have the hardest time finding financing due to lack of history and lack of assets, but with FundBox, businesses only need to be in operation for six months before applying. FundBox offers unsecured business lines of credit for up to $100,000. Businesses fund with FundBox because there are no additional fees such as origination fees or underwriting fees. Interest rates starting at 4.66% put them on par with their competitors. As for terms, FundBox is on the shorter side with 12 to 24 week terms for revolving credit, you can re-borrow principal as many times as you repay it. Collateral varies; you might have a blanket UCC filing, you might need a personal guarantee for larger amounts. This lack of security is why FundBox has shorter terms and smaller amounts than competitors.
For medium term unsecured business loans, Lending Club is the best choice for businesses. Business owners can get an uncollateralized loan for$2,000 and $250,000. Interest rates start at 7.9%, similar to a bank, but as a drawback they do charge an origination fee. To get these favorable rates and longer terms, you’ll need to have strong credit of 620+, strong revenue of $50,000 or more annually, and at least one year in business. If you meet these qualifications, you could receive $5,000 to $300,000 for one to five years at rates ranging from 5.9% – 25.9%. Lending Club can provide fast funding, but you’ll want to make sure your business doesn’t have any financial bankruptcies in its recent history.
New York Tribeca Group
New York Tribeca Group provides unsecured business loans through two means: matching making a business to another loan provider or through merchant cash advance funding. Merchant cash advances are unsecured because they use a COJ, meaning you don’t need collateral but if you default the funder can still recoup its losses through your business’s assets. While New York Tribeca Group can provide funding for up to $5,000,000, an unsecured loan would go up to $2,000,000 with buy rates ranging from 14 – 32%. To qualify, you’ll need a minimum of 520 credit score and $50,000 in annual revenue with six months in business. The stronger you are in each of these categories, the more likely you are to get more money with lower rates.
Pros and Cons of Unsecured Business Loans
Unsecured funding is enticing, it appears on the surface to have little to no risk for the borrower. But while it is a highly sought after financing option, there are pros and cons to weigh.
- Helps startup and minority businesses that may not have enough assets for a bank loan
- Fast and easy with minimal paperwork
- Business assets are not directly at risk
- More dependent on credit score than liquidity of assets, allowing higher amounts than what assets owned can back.
- Higher interest rates to lessen the risk of the lender
- Still secured either through personal guarantee, blanket UCC filing or COJ
- Credit score and history is much more important to qualify
- Shorter terms to lessen the risk of the lender
The main takeaway of researching the top unsecured business loans should be that even though the loan is uncollateralized, your business will still have effects if you default. An unsecured loan should not be a way to save your business assets if you are unsure if you can pay it back, but rather allow you to receive funding if you have no assets or need more than your assets can back. A personal guarantee on a loan means you will need to provide collateral if your business cannot. For this reason, many business owners turn to unsecured business lines of credit to ensure they only spend what they can pay back.