Small, short-term loans are ideal for startups and small businesses that need some capital but don't want to be saddled with a lot of debt.
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 costs. 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:
- Start your business. If you are starting out, you may not have any personal funds or investor capital to back your fledgling venture.
- Expand your business. When your business is showing some signs of success, but you need more money to grow, a loan of $100,000, for instance, can allow you to purchase the things you need to expand.
- Improve your cash flow. If your business provides a service, there may be a delay from the time you perform the service and when you receive payment. Loans can help you through the hard times.
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How do unsecured business loans work, and what are the different types of loans?
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 you apply 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 the up 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 than that of another lender offering an unsecured loan. 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 is taking 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.
How can you get an unsecured business loan?
Several alternative lenders provide small businesses with unsecured loans. Depending on the type of loan you need, you can likely find a lender out there who 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 offering and filling out an application online or over the phone. The company will review your business information, as well as your credit score and other 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's time.
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, like a government-issued photo identification, ready, as well as recent bank statements, credit card processing information, and maybe even tax returns. [Interested in Business Loans and Financing Options? Check out our top picks.]
What credit score do you need for an unsecured business loan?
This will vary by lender. One lender, Noble Funding, says it accepts credit scores from 525 to 800. Many lenders may advertise flexibility, and in some cases accept it, but the tried-and-true rule is the better your credit score, the more likely you are to get approved for a loan.
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.
Are unsecured loans safe?
Yes, but have a lawyer look at your loan documents. In some cases, a lender may have you sign a personal guarantee, which says you're personally liable if your business defaults on the loan. This can apply to you and your business partners. It is important that you understand the terms of the loan and read the fine print.
Lenders that provide unsecured loans
It's often not difficult to get $50,000 or $100,000 business loans 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:
- Fora Financial: Fora Financial provides small businesses and startups with various unsecured small business loans. Fora's pricing model is unique because it does not charge traditional interest rates. Instead, small businesses borrow and pay back a fixed amount based on the financial stability of their business. Fora Financial does not charge additional fees or require collateral.
- Noble Funding: Noble Funding provides unsecured small business loans, cash advances and bridge loans. Noble doesn't require collateral or even a personal guarantee. You can expect loan terms ranging from four to 18 months, and there are no upfront or closing fees.
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