Best unsecured business loans of September 2023

Best unsecured business loans

Compare the best unsecured business loans

Why some lenders didn’t make the cut

Of the 24 unsecured business loan lenders that we reviewed, only a fraction made the cut. The reasons for this varied by lender, with several not receiving high enough scores due to not publicly disclosing their rates or eligibility information like minimum credit score while others scored lower based on fees and a lack of discounts. Some were also disqualified due to requiring collateral for their loans.

Methodology

Our expert writers and editors have reviewed and researched 24 popular lenders to help you find the best unsecured business loan. Out of all the lenders considered, the five that made our list excelled in areas across the following categories (with weightings): loan details (30%), loan cost (20%), eligibility and accessibility (20%), customer service (15%) and application process (15%).

Within each major category, we considered several characteristics, including APR ranges, late fees and prepayment penalties, loan amounts, maximum loan terms, minimum credit score requirements, time in operation requirements and funding time. We also evaluated each provider’s customer support options and customer reviews. 

Types of unsecured business loans

There are several types of business loans that might not require collateral, including:

• Term loans: These loans provide a lump sum that you’ll pay back in equal installments over a period of time. This could be a good option if you know exactly how much you need to borrow. Note that some lenders require collateral for term loans while others don’t.
• Lines of credit: Unlike a term loan, a business line of credit gives you access to a revolving credit line that you can draw on and pay off on an as-needed basis. You’ll also only pay interest on what you actually borrow. Business lines of credit can be secured or unsecured, depending on the lender.
• SBA loans: The Small Business Administration (SBA) works with lenders to provide funding to small businesses. While many SBA loans are secured, you might be eligible for a smaller, unsecured loan. For example, both SBA 7(a) Small and SBA Express loans of up to $50,000 don’t require collateral.  
• Invoice factoring: This option lets you sell your outstanding invoices to a third-party factoring company. That company will fund you up to 90% of the invoice total and then assume responsibility for collecting the payment from your client. Invoice factoring companies consider the creditworthiness of your clients for eligibility, so you won’t have to worry about collateral.
• MCAs: A merchant cash advance (MCA) allows you to borrow money against your future debit and credit card sales, which you’ll receive as a lump sum. MCAs tend to be more accessible for borrowers with less-than-perfect credit and generally don’t require collateral. However, they can also be more expensive than other kinds of business financing with annual percentage rates (APRs) of up to 200%.

Unsecured business loan eligibility requirements

Eligibility requirements for an unsecured business loan can vary by lender. However, here are some common requirements to keep in mind:

Personal and business credit history

Lenders will generally consider your personal credit score as well as your business credit score (if applicable) to determine your creditworthiness. You’ll typically need good credit to qualify. A good credit score is usually considered to be a FICO score of 670 or higher. 

There are also some lenders that allow lower credit scores — such as Fora Financial, which accepts scores as low as 500. However, keep in mind that bad credit loans tend to come with higher rates and fees than good credit loans.

If your business is established enough to have generated a business credit score, it might also be reviewed. Establishing business credit can take one to three years, and the following scores are considered good for three of the major credit bureaus:

• Experian: 81 or higher.
• Equifax Payment Index Score: 90 or higher. 
• Dun & Bradstreet: 80 or higher.

Minimum time in business

Most lenders also require that your business has been in operation for a minimum amount of time. This can range from six months to two or more years, depending on the lender.

Minimum annual revenue

You’ll need to show that your business makes a certain amount of money each year to support repayment. Typical requirements for annual revenue range from $100,000 to $300,000 — though some lenders accept smaller revenues than this.

Industry

Some lenders have restrictions on what industries qualify for a loan. For example, OnDeck doesn’t lend to several industries, including nonprofit organizations, casinos, loan brokers and more. Be sure to check with the lender before applying to see if your industry is eligible.

Personal guarantee

While unsecured business loans don’t require collateral, many lenders will ask for a personal guarantee. This is an agreement from you as the borrower that you’ll repay the loan from your personal assets if your business defaults. 

For example, with a personal guarantee in place, a lender could collect from your personal bank account, garnish your wages or seize other assets if your business fails to repay the loan.

Pros and cons of unsecured business loans

Pros 

• No collateral required: With unsecured business loans, you don’t have to worry about providing collateral. This can make them a good option for businesses that don’t own major assets or valuable equipment. Plus, you won’t be at risk of losing your collateral if you miss payments. However, remember that if the lender requires a personal guarantee, you’re obligated to pay back the loan with your personal assets if the business defaults.
• Shorter application process: When a business loan is secured, the lender must closely examine the collateral to determine its value, which can slow down the application process. With an unsecured loan, the process can be quicker due to the lack of collateral and appraisal process.
• Might offer fast funding: Because of the shorter application process, you might get quick access to your funds from an unsecured business loan. For example, Credibly and OnDeck both offer same-day funding for approved loans. 

Cons 

• Can be harder to qualify for: Unsecured business loans are riskier investments for lenders. Because of this, they tend to have stricter qualification requirements compared to secured loans. 
• Higher interest rates: With a secured loan, a lender can seize the collateral and recoup its losses if a borrower fails to make payments. Because this isn’t possible with unsecured loans, lenders will often charge higher interest rates to reduce the risk.
• Lower loan amounts: Unsecured business loans tend to have smaller loan amounts compared to secured business loans since they aren’t backed by collateral.

Secured vs. unsecured business loans

The main difference between secured and unsecured business loans is the presence of collateral. Secured business loans are backed with collateral — such as equipment or real estate — and are seen as less risky to lenders. Because of this, a secured loan might come with a lower interest rate, better terms or a higher amount as well as less stringent requirements.

Unsecured business loans, on the other hand, don’t require collateral and are generally considered riskier for lenders as a result. This can translate into stricter eligibility criteria, such as higher credit score and revenue requirements. Many lenders also require a personal guarantee — meaning you risk losing your personal assets if you default on the loan.

Ultimately, the right choice between a secured and unsecured business loan will depend on your personal circumstances and business goals. 

How to apply for an unsecured business loan

If you’re ready to apply for an unsecured business loan, follow these steps:

1. Check your credit 

Lenders will review your personal and business credit when you apply for a loan — so be sure to check your credit beforehand to see where you stand. You can visit a site like AnnualCreditReport.com to review your credit reports for free. 

You can also check your FICO credit score for free through Experian, a credit-monitoring service or possibly through your bank or credit card issuer. 

There are also several third-party companies that offer access to your business credit report, including Dun & Bradstreet as well as the credit bureaus Experian and Equifax. If you find any errors in your personal or business credit reports, dispute them with the appropriate credit bureau to potentially boost your credit score.

2. Consider what type of funding you need

There are several kinds of unsecured business loans available, so it’s important to think about what would best suit your needs. For example, if you know exactly how much money you need, a term loan could be a good choice. Or if you’d prefer to have access to a revolving credit line, you might opt for a line of credit instead.

3. Compare lenders and pick your loan option 

Be sure to shop around and compare your options with as many lenders as possible. This way, you can find the right business loan for your situation. Consider interest rates as well as repayment terms, fees and eligibility requirements. 

Many lenders allow you to pre-qualify with only a soft credit check that won’t hurt your credit score — this can help you narrow down your choices. It’s also worth checking reviews from other borrowers to see what experiences were like with the lenders you’re considering.

After you’ve done your research, pick the lender you like best.

4. Gather documentation and apply

When you apply for a business loan, be prepared to provide both personal and business documentation. This can include business licenses, financial statements, tax returns and debt schedules (if any). The lender might also ask to see a business plan or proposal to review how you plan to use the loan and if it supports your ability to repay it.

Once you’ve gathered the necessary documentation, you’ll need to fill out a full application. Many lenders provide an online application process while others require you to discuss your options with a loan specialist to proceed.

5. Get your funds

If you’re approved, the lender will have you sign for the loan so the funds can be disbursed. How long the funding process will take depends on the lender — some disburse funds as soon as the same or next business day after approval while others can take weeks or even months. 

In general, online lenders provide the fastest funding compared to traditional banks and credit unions.