Taking on a significant amount of debt to launch your new venture can be downright scary, especially since it may be three to five years before your business turns a profit.
A small business loan of $50,000 to $100,000 may be all that your small business needs to grow. For example, a $50,000 to $100,000 loan can help pay for such things as equipment, rent and advertising. With a $100,000 business loan, most small businesses have enough capital to get off the ground.
You can apply for a secured or unsecured loan. A secured loan requires that you put up something of value in case you default on the loan; an unsecured loan, however, doesn’t require capital, and this type of loan can be ideal for startups.
Unsecured business loans of $50,000 to $100,000 can be used to do the following:
Lenders provide unsecured business loans as a small business financing option for startups and other small businesses looking to get a loan without putting up collateral.
When applying for a small business loan with a bank, you must provide collateral to secure your loan. This comes in the form of extra money that is paid upfront, or it can be a lien placed on various business assets. A lien is a financial term for the assets the lender “holds” until the loan is repaid. Secured business loans can limit small business flexibility and the ability of the company to secure additional loans.
With unsecured business loans, sometimes lenders won’t require collateral but will require a personal guarantee, which is a legally binding agreement with the lender that says you will pay the loan back.
Whether an unsecured loan is the best funding solution for your business largely depends on your personal financial situation; however, even though the lender may not require collateral, they may raise the interest rate or add application requirements to protect their investment.
What will also vary widely is the interest rate. There is no set interest rate for unsecured business loans; each lender will likely have a different interest rate. Your rate, however, will likely be higher than the interest rate for a traditional bank loan. By offering an unsecured loan and not requiring collateral, the lender takes on more risk by accepting your loan. When the risk is higher for the lender, the interest rate is higher. There’s no such thing as an unsecured business loan with a low interest rate.
Common types of unsecured loans include merchant cash advances, working capital loans and business lines of credit.
There are abundant options for unsecured small business loans. Which loan type makes sense for you depends on your credit score, why you need the money and how long you need it.
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Several alternative lenders provide small businesses with unsecured loans. Depending on the type of loan you need, you can likely find a lender that will provide one to you, and with no personal guarantee. Again, the interest rate and fees are likely to be higher.
Applying for unsecured loans usually involves reviewing a company’s loan offerings and filling out an application online or over the phone. The company will review your business information, as well as your credit score and financial statements, to determine whether your business qualifies for the loan. Many unsecured loans are short-term loans that are paid back in just over a year.
When you apply for an unsecured loan with an alternative lender, you’ll likely need to provide documentation about your business’s financial stability. It’s important to review each lender’s website to determine what their requirements are. We recommend having basic personal documents ready, such as a government-issued photo ID, recent bank statements, credit card processing information and maybe even tax returns.
This will vary by lender. In our comprehensive review of SBG Funding, we found that it accepts credit scores as low as 500. Many lenders may advertise their flexibility, but the tried-and-true rule is the better your credit score, the more likely you are to get approved for a loan. A credit score around 700 is usually considered good, with 800 and up being the best.
Your best bet is to talk directly to the lender about your situation. There are no hard-and-fast rules for unsecured business loans; if you have a poor credit score, do your best to negotiate a deal with a bank or an online lender.
Alternative lenders are willing to take on more risk than traditional banks or credit unions, but they do require you to have an operational business. As a result, many alternative lenders want you to show that you can run a business, but requirements vary for how many years of business you need to have under your belt. In our review of Rapid Finance, we found that it requires you to have been in business for only three months. On the higher side, our full review of Biz2Credit revealed that it requires 18 months in business.
Whether you want to borrow $50,000 or $100,000, lenders want to make sure your business has sales. You may not be profitable, but you do have to show you have customers and revenue. To mitigate the risk of the business failing and the small business owner defaulting on the loan, lenders on unsecured loans require business owners to have a minimum amount of annual sales.
Again, it varies from one lender to the next. Our review of Balboa Capital found that it had more stringent requirements. It requires $300,000 in annual sales for some of its loan products. Our full review of Accion found more relaxed requirements – only $50,000 in annual sales.
Unsecured loans are safe, but have a lawyer look at your loan documents. In some cases, a lender may have you sign a personal guarantee, which makes you personally liable if your business defaults on the loan. This can apply to you and your business partners.
Whether you are borrowing from a bank or an alternative lender, it’s important to understand the total cost of borrowing. That includes the interest rate and any other fees. The annual percentage rate (APR) will tell you that. Make sure you read the fine print of your loan agreement so that you are clear on all of those details.
It’s often not difficult to get a $50,000 or $100,000 business loan if you have good credit and a solid business plan. There are hundreds of lenders throughout the U.S. that can provide unsecured small business loans. If you’re interested in applying for an unsecured business loan for your startup or small business, here are two reputable companies you may want to consider:
Matt D’Angelo contributed to the writing and research in this article.