What You Need To Know About Unsecured Small Business Loans?

An unsecured small business loan requires no personal assets for collateral and rather, it depends on the creditworthiness of the business owners based on credit history and income.

In any case, lenders do not have the right to seize physical assets such as a home or vehicle, if the borrowers fail to pay the regular instalments. 

Such types of loans are also known as “signature loans” because you sign the loan agreement and promise to repay without pledging any collateral.

Difference Between Secured & Unsecured Business Loans?

A secured business loan requires collateral such as liquid assets, equipment, real estate, and any other personal or business assets to secure the interest of the loan. It’s a pretty much acceptable form of lending for most lenders. 


Secured & Unsecured Business Loans

On the other hand, unsecured business loans do not need any kind of personal assets as collateral but may require business performance as a guaranteed asset and therefore have a higher risk for the lenders.

Types of Unsecured Business Loans

Unsecured debt comes in various forms, such as:

Merchant Cash Advance (MCA): Merchant cash advance loans allow you to receive money, in exchange for a profit percentage of projected future sales. It can fluctuate to match how well a business is going within a certain cycle due to various factors. You don’t have to pay a fixed amount of money every month.  

Unsecured Business Line of Credit: It gives you easy & immediate access to loan amounts up to $5 million. It can be used for various business purposes such as upgrading your machinery, maintaining the gap between slow payments, making a bulk investment, etc. 

Invoice Financing: It is available to some specific businesses that require clients invoice to receive an advance. It is ideal for those business owners who have insufficient financial statements, marginal credit, and other financial factors that restrict them from receiving traditional funding. 

Business Credit Cards: They are similar to your credit cards. They are ideal for immediate payments and purchases. The flexible minimum monthly payments depend on the principal interest rate.

How Long Does it Take to Get an Unsecured Loan?

With fewer evaluation protocols and no personal collateral underwriting, a very little paperwork is required for an unsecured small business loan approval, resulting in a smooth funding process.

The lenders will approve an unsecured small business loan by evaluating the following factors: 

  • Your credit history
  • Pay stubs
  • Sufficient proof of income
  • Tax returns
  • Bank statements 
  • Ability to repay
  • And other factors.

The Difference Between the Interest Rates of Secured & Unsecured Loans?

Despite the higher risk & interest rate, unsecured business loans bring more saving to the owners in the long run. While traditional lenders such as banks offer secured loans with a low rate of interest, it often involves hefty processing fees in the approval process.

Unsecured Small Business Loans

Unsecured business loans come with the benefits of flexible term lengths and repayment according to the client requests. It also offers fluctuating interest rates to match the sales of your business.

Practical Use Of Unsecured Small Business Loans

Unsecured business loans are used for

  • Bridging gaps in cash flow
  • Managing purchases and payroll
  • Hiring staff and business expansion
  • Covers daily cash flow requirements
  • Leasing or upgrading equipment
  • And, virtually any other business need

Unsure If To Apply For Unsecured Business Loan?

It is better to seek legit market information before making the final decision. Give us a call 703-399-1685 to speak with our finance experts. Let us help you to decide whether an unsecured small business loan would be the perfect choice for you.