What Are Unsecured Business Loans?
In a nutshell, unsecured business loans are commercial loans designed for businesses that don’t require any collateral for the loan. These loans can be attractive for businesses that don’t have much to offer in the way of collateral, although the interest rates are usually higher than secured business loans to make up for the increased risk the lenders take on without collateral.
Pros and Cons of Unsecured Business Loans
No Collateral Required
Not having to put down collateral is a primary benefit of unsecured business loans.
With unsecured business loans, you don’t need to wait for an appraisal of the assets you’d be using for collateral. That is the case for secured loans, which can make the process take a while.
Easy Loan Application
With less paperwork to complete (e.g. the appraisal), the application process for unsecured business loans is often much simpler.
Flexible Use of Funds
Unsecured loans don’t have as many rules and limitations on what you can use the borrowed money for as secured loans do.
Higher Interest Rate
Unsecured business loans typically come with higher interest rates than secured loans as the lender takes on more risk without collateral.
Short and Inflexible Terms
The repayment period for secured loans can be several years, whereas the repayment periods for typical unsecured business loans are shorter.
Frequent Loan Payments
Short-term unsecured business loans may require weekly payments on your loan. This may be difficult if your revenue tends to fluctuate.
6 Types of Unsecured Business Funding
Small business credit cards are essentially unsecured loans. Business owners and authorized parties can borrow money from credit card companies and repay at a later date without having to secure the credit with collateral.
Business term loans are loans of a specific amount agreed upon by the lender and borrower. They come with very specific repayment schedules, usually paid out weekly, monthly or bi-monthly.
These are like general business loans, the difference being that the business owner (or individual who takes out the loan) is the responsible party instead of the business. So while the business is the official borrower, the individual is responsible for paying off the loan rather than the business.
Merchant cash advances are cash advances that are approved and funded in just a matter of days and require very little paperwork. Instead of paying back in regularly scheduled payments, businesses pay back the lender via a percentage of their daily credit card sales.
Receivables financing, often known as invoice factoring or accounts receivables financing, lets businesses receive money up front in exchange for the value of the business’s invoices that are due in the future.
A business line of credit is one of the most flexible types of unsecured business loans you can find. Once approved for a certain amount, you can borrow what you need (up to your limit) and repay on a weekly or monthly repayment schedule. As you repay, the amount you can borrow becomes available again.
What Does Headway Capital Offer?
Headway Capital believes small businesses can achieve great things with the right tools and resources. That’s why we offer a True Line of Credit™ with no hidden fees. Once approved, you can draw funds up to your available credit limit right away.
Applying for a Headway Capital line of credit is quick and easy. To be eligible, you just have to meet the minimum qualifications:
Time in Business
In business at least one year
Annual revenue of at least $50,000
Located in a state we operate in.
See if we serve your state!
If your business is eligible and you need an unsecured business line of credit you can rely on, go ahead and see if you qualify with Headway Capital today!
FAQ About Unsecured Business Loans
How do I get an unsecured business loan?
If you don’t have the right type of assets to secure a business loan, an unsecured business loan may be your only chance of receiving business funding. You can find unsecured business loans at banks, credit unions, and — increasingly — online. Just be sure not to apply for too many in a short amount of time or it may negatively impact your business credit score.
What happens if you default on an unsecured business loan?
How do I get a small business loan with bad credit?
1We always do a soft inquiry unless your credit file is restricted, in which case we would ask you to contact the credit bureau to lift the restriction. Doing so may result in a hard pull.