Portions of this article were drafted using an in-house natural language generation platform. The article was reviewed, fact-checked and edited by our editorial staff.

Key takeaways

  • Unsecured business loans come in many different forms, so it’s important to choose the right type of loan for your situation
  • When applying for an unsecured business loan, make sure to have all the required documents and information ready and to compare different lenders to get the best deal
  • Defaulting on an unsecured loan can have serious consequences for both your business and your personal finances, so make sure you can pay it back before taking out the loan

An unsecured business loan is a type of loan that does not require collateral. It’s one of the best options for business owners who 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 unsecured business 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

You’ll want to make sure you can manage an unsecured business loan. 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 business loan 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
  • Line of credit
  • Same-day funding for loans approved before 10:30 a.m.
  • Early repayment incentives
  • 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.

What happens if you can’t repay your unsecured small business loan?

Defaulting on your unsecured business loan can have serious consequences for both your business and your personal finances. Once your loan goes into default, a lender has the right to demand immediate repayment of the entire loan balance. Lenders may also take you to court and try to take possession of your personal assets, such as any bank accounts, real estate or vehicles, to cover the cost of the unpaid loan.

Your credit score will also suffer, and negative marks will appear on your credit reports. Late payments negatively impact your credit scores. And multiple months of delinquency will be reported. It can take years for these marks to drop from your report.

If you can’t repay your unsecured business loan, contact your lender immediately. In some cases, lenders may be willing to settle for less than the full amount of the loan. If you have the funds to pay off a portion of the loan, this can be an ideal solution to getting out of debt.

Deferment and forbearance options may also be offered by some lenders. These options allow for temporary payment suspension or a reduction in rates. Just make sure you read the terms of your business loan carefully to understand what’s expected of you and when payments are due.

What to do if your business loan is denied?

If your business loan application is denied, the first step is to figure out why. There are several reasons why a small business loan can be denied. It could be that you simply don’t qualify for the loan or don’t meet eligibility requirements. Review the reasons for your denial.

Also examine your business and personal credit reports and review your credit history for errors. If there’s a mistake, dispute it with the credit bureaus immediately. Resolve any accounts in collection and settle any outstanding payments that are overdue. You may need time to build your credit score. Paying your bills on time and keeping your debt to a minimum can help build a strong credit history, which can increase your chances of loan approval.

While you work to improve your credit, consider alternative lenders that specialize in helping businesses that struggle to qualify for loans. These lenders help startups and business owners with bad credit. And they may be able to give you a fast quote without creating a hard pull on your credit. But lenders that specialize in less creditworthy businesses will typically require collateral or charge higher rates and fees to compensate for the increased risk.

Bottom line

Unsecured small 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.”