Going into debt to start your new business can be scary, especially since it can take three to five years for your business to turn a profit.
A small business loan of $ 50,000 to $ 100,000 may be all your small business needs to grow. For example, a loan of $ 50,000 to $ 100,000 can help pay for things like equipment, rent, and advertising. With a $ 100,000 business loan, most small businesses have enough capital to get started.
You can apply for a secured or unsecured loan. A secured loan requires that you provide something of value in case you fail to repay the loan; an unsecured loan, however, does not require capital, and this type of loan can be ideal for startups.
Unsecured business loans of $ 50,000 to $ 100,000 can be used for:
- Start your business. You may not have personal funds or investor capital to support your fledgling business at the start.
- Grow your business. When your business is showing signs of success, but you need more money to grow, a loan of $ 100,000, for example, can allow you to buy the things you need to grow.
- Improve your cash flow. If your business provides a service, there may be a delay between when you perform the service and when you receive payment. Loans can help you get through these times.
How do unsecured business loans work and what are the different types of loans?
Lenders offer unsecured business loans as a small business finance option for startups and other small businesses looking to secure a loan without placing collateral.
When you apply for a small business loan from a bank, you must provide collateral to secure your loan. This comes in the form of extra money that is prepaid, or it can be a lien placed on various business assets. A lien is a financial term for the assets that the lender “holds” until the loan is repaid. Secured business loans can limit the flexibility of small businesses and the ability of the business to obtain additional loans.
With unsecured business loans, sometimes lenders will not require collateral, but a personal guarantee, which is a legally binding agreement with the lender that says you will repay the loan.
Whether an unsecured loan is the best financing solution for your business depends in large part on your personal financial situation; however, even if the lender does not require collateral, they may increase the interest rate or add demand requirements to protect their investment.
What will also vary widely is the interest rate. There is no fixed interest rate for unsecured business loans; each lender will likely have a different interest rate. However, your rate will likely be higher than the interest rate on a traditional bank loan. By offering an unsecured and unsecured loan, the lender takes more risk in accepting your loan. When the risk is higher for the lender, the interest rate is higher. There is no such thing as a low interest unsecured business loan.
Common types of unsecured loans include cash advances to merchants, working capital loans, and commercial lines of credit.
Editor’s Note: Looking for a business loan? Complete the questionnaire below to be put in contact with suppliers who can help you.
How to get an unsecured business loan?
Several alternative lenders offer small business unsecured loans. Depending on the type of loan you need, you can probably find a lender who will provide you with one, and without personal collateral. Again, the interest rate and fees are likely to be higher.
Applying for unsecured loans usually involves reviewing a business loan offerings and completing an application online or over the phone. The company will review your business information, as well as your credit rating and financial statements, to determine if your business qualifies for the loan. Many unsecured loans are short term loans that are paid off in just over a year.
When you apply for an unsecured loan from another lender, you will likely need to provide documents about the financial stability of your business. It is important to check each lender’s website to determine what their requirements are. We recommend that you prepare basic personal documents, such as a government issued photo ID, recent bank statements, credit card processing information, and maybe even tax returns.
What credit score do you need to get an unsecured business loan?
This will vary depending on the lender. In our full review of SBG financing, we found that it accepts credit scores as low as 500. Many lenders can advertise their flexibility, but the proven rule is that the better your credit rating, the more likely you are. to get approved for a loan. A credit score of around 700 is generally considered good, with 800 and above the best.
Your best bet is to speak directly to the lender about your situation. There are no hard and fast rules for unsecured business loans; if you have a bad credit rating, do your best to negotiate a deal with a bank or lender online.
How Long Does It Take To Be In Business To Get An Unsecured Business Loan?
Alternative lenders are willing to take more risk than traditional banks or credit unions, but they do require you to have a functioning business. As a result, many alternative lenders want you to show that you can run a business, but the requirements vary depending on how many years in business you are required to have. In our review of Rapid Finance, we found that it requires you to be in business for only three months. On the high side, our full review of Biz2Credit found that it requires 18 months of activity.
What are the annual sales conditions for getting an unsecured loan?
Whether you want to borrow $ 50,000 or $ 100,000, lenders want to make sure your business is making sales. You might not be profitable, but you have to show that you have customers and income. To mitigate the risk of business bankruptcy and small business owner default on the loan, unsecured loan lenders require business owners to have a minimum annual sales amount.
Again, this varies from lender to lender. Our review of Balboa Capital found it to have more stringent requirements. He needs $ 300,000 in annual sales for some of his loan products. Our full review of Accion found more flexible requirements – just $ 50,000 in annual sales.
Are Unsecured Loans Safe?
Unsecured loans are safe, but have a lawyer review your loan documents. In some cases, a lender may make you sign a personal guarantee, which makes you personally liable if your business does not honor the loan. This may apply to you and your business partners.
Lenders who offer unsecured loans
It is often not difficult to get a business loan of $ 50,000 or $ 100,000 if you have good credit and a solid business plan. There are hundreds of lenders in the United States who can provide unsecured small business loans. If you are looking to apply for an unsecured business loan for your startup or small business, here are two reputable businesses you may want to consider:
- Financial Forum provides small businesses and startups with various unsecured small business loans. Fora’s pricing model is unique in that it doesn’t charge traditional interest rates. Instead, you borrow and pay back a set amount based on the financial stability of your business. Fora Financial does not charge any additional fees and does not require a guarantee. Learn more in our full Fora Financial review.
- Noble financing, our top choice for customer service, offers unsecured small business loans, cash advances and bridging loans. Noble does not require a guarantee or even a personal guarantee. You can expect loan terms ranging from four to 18 months with no upfront or closing costs. Learn more in our full Noble Funding review.
Matt D’Angelo contributed to the writing and research of this article.