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How to Get an Unsecured Business Loan in 5 Effective Steps

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What are the most effective steps to get an unsecured business loan for your company? Learn more in this article!

6 min read. March 25, 2022. – by Joe Camberato

Financing is critical for starting and maintaining a successful business. At some point or another, you’re going to need business financing to cover an unexpected expense or jump on a new opportunity for growth. Whatever the situation, access to additional capital can be a huge help.

As you research different types of loans, you’ve probably come across the terms “secured” and “unsecured” business loans.

Simply put, unsecured business loans are financing products that don’t require you to put up collateral. In other words, you won’t have to pledge any of your assets in exchange for financing when you take out an unsecured loan.

Unsecured business loans are fairly sought-after. Unfortunately, they can also be difficult to qualify for in some cases. That’s why we’re sharing top insights about unsecured business loans and how to get an unsecured business loan. 

how to get an unsecured business loan

1. Understand how unsecured small business loans work

The first step in order to get an unsecured business loan for your organization is to understand how it works.

Unsecured small business loans don’t have any collateral requirements. Collateral can be risky for small business owners, especially when personal assets are being used.

If your business plans turn sour or if you can’t make payments, you may be forced to forfeit the property you’ve used as collateral. Many newer businesses also have limited access to valuable assets, which can cause them to be excluded from financing.

Unsecured business loans step in to resolve these issues. Instead of looking at the value of the assets you own, lenders will heavily weigh your credit score, revenue, and potential for growth.

They will base their decision to approve you on these factors. If you’re approved, you won’t have to worry about your lender seizing your assets in case you can’t repay your loan.

The downside to unsecured business funding is that they’re typically more expensive than secured financing solutions. This is because unsecured business loans are riskier for lenders – since they won’t have the option to claim your assets in the event of a default.

To compensate for this heightened risk, lenders will impose higher interest rates.

2. How to get an unsecured business loan

It can be somewhat difficult to get a business loan without putting up collateral. Many lenders are unwilling to put up with the risks associated with these types of loans – as they won’t be able to recuperate their losses by seizing your assets if you can’t make payments. 

Alongside higher interest rates, lenders will also impose stricter requirements. You’ll need to have strong credit, high revenue, and likely have been in business for at least 2 years. This is especially true if you’re applying at a bank. Banks are known for having some of the lowest approval odds on the market and the strictest requirements.

For these reasons, you may opt to work with alternative lenders offering higher approval odds for unsecured small business loans. These are typically online or fintech lenders.

They’re more willing to work with newer businesses and those with lower credit scores. Many also offer easier, faster application processes with funding times as quick as 24 hours. 

Suggested reading: Unsecured Business Loans for Startups: 3 Things You Need to Know

3. Evaluate the different types of unsecured business loans

The third step to get an unsecured business loan is to evaluate the different options that you have at your availability.

There are several types of unsecured business loans or loans that don’t require collateral. Depending on your situation and the reason you need financing in the first place, some of these solutions may work better than others. 

3.1. Long-term loans

Most long-term loans are secured, which means they require collateral. Although it can be difficult, it is possible to find long-term unsecured business loans. Long-term options typically range up to 25 years.

If you’re looking for a long-term unsecured loan for your business, you’ll need to have a proven track record of business history, strong revenue, and good credit. 

Long-term loans are generally reserved for larger amounts and feature multiple years of repayment. Because the risk for lenders is higher, you’ll likely end up paying more in interest on a long-term unsecured loan than you would on financing that comes with collateral. 

3.2. Short-term loans

Short-term business loans are much easier to obtain without collateral requirements. Nevertheless, your financial criteria and credit score will still have a major influence on your application’s approval odds. 

Short-term loans typically have a repayment period of one year or less. They are best used for short-term expenses, like inventory purchases or operating costs. Many businesses will also use short-term loans to cover seasonal lulls and slow periods. 

3.3. Merchant cash advance

Merchant cash advances, or merchant financing, provide retailers with an upfront lump sum of capital to be repaid as a percentage of future credit card sales. They are technically not a loan, instead, they’re an advance on your business’s future sales. 

Merchant cash advances have high approval rates and fast funding times. To get approved for this type of financing, your business’s revenue will have the most weight – while your time in business and credit score will matter less.

Keep in mind that merchant cash advances come with high-interest rates, which will come out of your daily sales.

4. Assess the advantages of unsecured small business loans

There’s a reason why unsecured small business loans are highly sought-after. After all, they come with many benefits. Take a look at some of the most noteworthy advantages to this type of small business loans.

4.1. Shorter loan application process

Unsecured small business loans have significantly shorter application processes than their secured counterparts. That’s because unsecured financing allows you to skip an entire step, namely, the appraisal process.

Since you won’t be dealing with collateral, you won’t have to wait or pay, for the lender or an outside party to determine your asset’s value. 

4.2. No collateral requirement

It sort of goes without saying – but not having a collateral requirement can be a benefit in and of itself. For starters, it can open the doors for many newer, smaller businesses to seek funding opportunities.

Many businesses simply don’t own high-value assets that can be used as collateral, and unsecured loans help them work around these conditions.

4.3. Less risk

Secured business loans come with an extra layer of risk for borrowers. In case you’re unable to repay your debt, you could find yourself in a situation where you have to forfeit the property you’ve used as collateral.

This can be especially problematic if you’ve used personal assets, such as a home. Unsecured business loans allow you to avoid this worst-case scenario by taking away the need for collateral. 

5. How to find the right unsecured loan for your business

You have many options to choose from in order to get an unsecured business loan for your company. Start by considering the different types of lenders you can work with to secure financing. 

When business owners need capital, more often than not, banks are the first lenders that come to mind. However, banks may not be the best lenders for unsecured business loans. Most banks have collateral requirements – and even when they don’t you’ll still face lower approval odds. 

Another option is to work with online lenders – which are known for being more flexible. You’ll be more likely to find an unsecured business loan, plus, your chances of approval will also be higher.

Although online lenders can be slightly pricier than banks, you can always compare multiple offers by working with a fintech marketplace like National. 

National has a network of over 75 different lenders that offer small business loans and other products personalized to your needs. Each business is evaluated on more than just credit history or collateral requirements. Instead, revenue levels and growth potential are taken into account. 

Want to learn more about the business financing products you could qualify for? Fill out the 60-second application and an advisor will reach out to you with personalized solutions.

unsecured business loans

FAQ

And now, let’s answer some of the most common questions that companies ask when they want to learn how to get an unsecured business loan.

What are the benefits of unsecured small business loans?

The benefits of unsecured small business loans include a shorter loan application process, less risk, and the lack of collateral requirement. For companies, this means that they will not have to provide an asset for security in case they can’t pay the loan back. Additionally, unsecured loans offer more flexibility and require less documentation.

What are the different types of unsecured business loans?

There are different types of unsecured business loans that you can choose from for your organization, and they can be divided into three categories: short-term loans, long-term loans, and merchant cash advance.

Do I need a collateral for an unsecured business loan?

No, you don’t need a collateral in order to get an unsecured business loan. This means that you don’t need to provide any assets to the lender, which are used as a security in case things don’t work out.

Last Updated on March 23, 2022

National Business Capital is the top FinTech marketplace offering small business loans and financing. Harnessing the power of leading technology and smart people, we’ve streamlined the application process to secure over $1 Billion in financing for business owners nationwide.

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About the Author, Joe Camberato

Joseph Camberato, CEO of National Business Capital, developed a passion for business at a young age. Joe started his company in 2007 in his spare bedroom and has grown to secure over $1 Billion dollars in financing for small business owners nationwide. National’s team has an amazing culture and has been name the #1 Top Workplace on Long Island 3 years in a row and counting. Joe is a trusted financial expert who’s published more than 2,000 articles in the last 3 years. His articles have generated over 5 million page views and has been featured on blogs such as Google News, Yahoo, CNBC, Forbes Magazine, etc. His passion has also inspired him to build the "GrowByJoe” YouTube channel where he shares his insights into small business trends and tips for growth. Joe also holds a seat on Forbes Finance Council and is an active member of the Young Presidents' Organization (YPO), a global leadership community.

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Disclaimer: The information and insights in this article are provided for informational purposes only, and do not constitute financial, legal, tax, business or personal advice from National Business Capital and the author. Do not rely on this information as advice and please consult with your financial advisor, accountant and/or attorney before making any decisions. If you rely solely on this information it is at your own risk. The information is true and accurate to the best of our knowledge, but there may be errors, omissions, or mistakes.