An unsecured business loan is a type of loan that does not require collateral. It’s one of the best options for business owners that need financing but don’t have assets that can be used to secure the loan.

Unsecured business loans come in many different forms. To apply for one, you’ll need to figure out the type of loan best for your situation, assess your company’s needs and complete the application in full. Follow these steps to find the most affordable unsecured loan for your business.

Decide what type of unsecured business loan

The first step in applying for an unsecured business loan is to choose the right type of loan. There are many different types of unsecured business loans, and each works slightly differently. Which loan you choose will depend on why you want to borrow money.

Loan type Description Best for
Term loan A lump sum of cash.
  • One-time expenses.
  • Large business expenses
SBA loan (under $25,000) Government-insured loans that offer easier qualification but a much longer application process.
  • Companies that struggle to qualify for other types of funding
Business line of credit A pool of cash you can draw from multiple times, on an as-needed basis. You only pay interest on the outstanding balance.
  • Businesses that need flexible access to funding
  • Borrowing on multiple occasions over the medium term
Invoice factoring Loans that rely on the value of your invoices. You’ll get a percentage of your invoiced amount immediately rather than waiting for customers to pay you.
  • Businesses that send a lot of invoices to customers.
  • Overcoming a cash crunch caused by unpaid invoices
Business credit card Smaller lines of credit that you can draw from multiple times and use for daily purchases. You pay no interest if you pay the balance in full each statement.
  • Daily purchases
  • Short-term 0% interest financing
Merchant cash advance Small, short-term loans you can use for buying inventory and other immediate expenses. You repay the loan through a percentage of your daily sales.
  • Emergencies
  • Covering small gaps in funding

Figure out how much loan can you afford

It’s important to make sure that you’ll be able to pay back any loan you get. The last thing you want is to get trapped in a cycle of debt, using new loans to pay off old ones.

There are a few ways to determine the size of loan you can afford. One common rule of thumb for lenders is not to let a company borrow more than 10 percent to 30 percent of its annual revenue. If you have no existing debt and annual revenue of $100,000, you can borrow $10,000 to $30,000.

This rule of thumb is helpful, but it might be a better idea to figure out what the monthly loan payment will be using a calculator. Compare the monthly payment to your company’s monthly cash flow and make sure you have sufficient income to make the payment.

Also, make sure not to borrow more than you need, even if you can afford it. Only borrow as much as you need to cover your needs.

Decide how fast you need funds

Different types of loans have different approval and funding timelines, so your decision here may influence the type of loan you choose. Banks tend to take a week or longer to fund loans but may be worth the wait since loans tend to have lower interest rates and more favorable terms. Online lenders provide the fastest funding. And even though rates are higher and repayment terms can be shorter, online lenders provide better access for startups and bad-credit borrowers.

Compare unsecured business loan lenders

The next step is to shop around and compare business lenders. You’ll be looking at a few different factors.

Type of loans offered Make sure the lender you choose offers the right type of loan.
Rates and fees Look for the lender that offers the most affordable loan. That means comparing interest rates, the number of fees and the total cost of the loan.
Eligibility Different lenders have different loan eligibility requirements. You’ll need to make sure your credit score, time in business, and annual revenue match the lenders minimum qualifications.
Repayment terms Some lenders are more flexible than others when it comes to choosing a repayment period. But some loans may require daily, weekly or biweekly payments, which can be tough to manage. The more power you have to customize the repayment period of your loan, the easier it will be for you to find a payment that fits your budget.
Funding speed Choose a lender that will fund the loan quickly enough for you to cover your financial needs.

Examples of unsecured business loan lenders

These are some of the top options if you’re in the market for an unsecured business loan.

Lender Unsecured loan types Best features
Bank of America
  • Line of credit
  • Term loan
  • Variety of loan types
  • Low rates
  • Large network of branches
Wells Fargo
  • Line of credit
  • Rewards program that helps you earn money when using the line of credit
  • Easy qualification for new businesses
OnDeck
  • Line of credit
  • Same-day funding for loans approved before 10:30 a.m.
  • Early repayment incentives
Fundbox
  • Line of credit
  • Minimum credit score of 600
  • Next-day funding
  • No early repayment penalty

Gather required documents and information

When you apply for an unsecured business loan, the lender will ask for some information and the paperwork to back it up. The lender will want to assess your company’s financial situation to make sure it can afford to make payments on a new loan.

Having the documents ready when you apply can save you a lot of time and headaches and really speed up the process. Try to have the following info ready to go.

  • Your name
  • Your address
  • Your contact info
  • Your Social Security number
  • Your business formation documents
  • Your Employer Identification Number
  • Any licenses or permits
  • A business plan
  • Bank statements
  • A balance sheet
  • Income and cash flow statements
  • A list of current payables and receivables

Apply for an unsecured business loan

Once you’ve chosen your loan type, decided on an amount to borrow, selected your lender and gotten the documents ready, it’s time to apply.

This process usually doesn’t take too long, but it’s essential to carefully review the application and loan documents. Read the fine print before signing anything to make sure you understand how your loan and its repayment will work.

If all goes well, the lender will approve your loan, and you’ll receive your funds.

Bottom line

Unsecured business loans are a useful way for businesses to get funding. Follow these steps, and you can be sure to get a loan that will help your company. Just make sure you try to shop around and compare lenders to get the best possible deal.

Frequently asked questions

  • If you can’t repay an unsecured business loan, the loan can default. When that happens, the lender can take legal action against you to get its money back. If you offered a personal guarantee, you could get sued and held personally liable for repaying the debt.
  • Unsecured loans generally aren’t difficult to get if you have good or excellent credit. But many unsecured loans can be harder to get than secured loans if you have fair or bad credit.
  • SBA loans can be either secured or unsecured. The SBA does not require collateral for loans up to $25,000. For loans over $350,000, lenders must “collateralize the loan to the maximum extent possible up to the loan amount.”