Unsecured Small Business Loans

Unsecured Small Business Loans

If you’re lucky enough to start a business with enough collateral to pledge against a business loan, it’ll be pretty simple to secure funding, but if (like most businesses) you don’t and you are reluctant to use your personal credit, there are options. Introducing the no-collateral business loan options. No it’s not a mythical creature, they do exist.

As you would expect, unsecured business loans are tougher to qualify for, and often carry higher interest rates than secured loans, but they have less risk for borrowers.

Types of unsecured small-business loans typically available include:

Term loans: Term loans provide small businesses with a lump sum of working capital, which is a loan paid back over a set amount of time with an agreed-upon payment schedule. Short-term business loans may be available, but they can be challenging for a small business or a startup because of larger payments.

Business lines of credit: With an unsecured business line of credit, a lender approves you for a revolving line of credit. An unsecured business line of credit works similar to credit cards; there’s a maximum limit you can borrow, and you’ll be charged interest only for the amount of money you borrow. You can use a business line for working capital, filling in cash flow gaps or growing your business.

Invoice financing: Invoice financing can be a working capital loan for small businesses struggling with cash flow issues because of unpaid invoices. With invoice financing, you sell your unpaid invoices to a lender at a discount, typically about 80% of what the invoices are worth.

The lender will seek payment for the full value from customers. While invoice financing is easy to secure, the fees can add up quickly, so small-business owners should carefully consider the costs.

Merchant cash advances: A merchant cash advance offers quick access to capital with a single sum of cash for a percentage of your forecasted sales. You will repay the advance, plus any fees, with either a portion of your future credit and debit card sales, or fixed daily or weekly transfers from your business bank account. Because they normally have interest rates that can hit triple digits, merchant cash advances are often not a sound choice.

How Do Unsecured Business Loans Work?

Unsecured business finance options work like traditional small-business loans, except you aren’t required to offer a form of collateral. Not every borrower is in a position to put up collateral for a small-business loan.

Many alternative lenders make small-business loans that don’t require collateral. Instead, they offer unsecured loans based on the creditworthiness of you or your business.

Where Can You Get an Unsecured Business Loan?

Banks or credit unions may offer unsecured term loans or business lines of credit, but you’re most likely to find an unsecured business loan from an alternative lender. Alternative lenders are typically financial technology firms, or fintechs, that use automated technology to determine your creditworthiness, and some may charge higher interest rates than traditional lenders.

Conclusion

It is possible to obtain unsecured small business loans, but it can be a rocky road if you aren’t aware of the pitfalls ahead. We pride ourselves on our ability to navigate even the most rigorous application processes. Our role is to take the strain, so you can focus on your business while we handle the detail of your application.

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