Are you a small business owner looking for financing options that don’t require collateral? Vital Funding Solutions can help. In this article, we’ll discuss the best unsecured business loans available in 2022 and how they can help your business succeed.

 

What is an unsecured business loan?

As a small business owner, you need access to capital to cover startup costs, purchase inventory, or handle other monetary needs. While traditional business loans require collateral such as real estate, valuable equipment, or inventory, unsecured loans are based on creditworthiness alone and do not require collateral. Unsecured business loans provide a lump sum of cash, which you repay over a period of time. While they may carry higher rates than secured loans, they offer a faster repayment timeline.

 

How do unsecured business loans work?

Unsecured business loans are issued based on a business’s creditworthiness and other factors, and do not require collateral. This means there is more risk for the lender if the loan is not repaid. Because of this, lenders who offer unsecured financing options may require a signed personal guarantee. Rates may be higher than secured loans, but the repayment period is generally shorter.

 

What’s the difference between secured and unsecured business loans?

Secured loans require collateral, while unsecured loans do not. The collateral lessens the risk on the lender, which can result in lower rates, flexible terms, and potentially higher loan amounts. However, unsecured loans are tailored to small businesses in need of additional capital, and offer flexible financing options. Unsecured loans are not backed by collateral, so rates may be higher, repayment periods shorter, and loan amounts smaller.

Although the biggest difference between secured and unsecured small business loans is collateral, the other ways they differ are:

 

• Application and approval process: Lenders need time to evaluate the value of the assets offered up for collateral when it comes to a secured loan application which may take longer, but not always depending on the lender. An unsecured loan, however, can take as little as a few days.

 

• Lender requirements: Some lenders require business owners to sign a personal guarantee document for unsecured loans. This document shows acceptance for personal responsibility for repaying the debt in the event the business defaults on the loan. For secured loans, lenders need proof that the collateral is valuable enough to use as an asset to back the loan. This process will be a key component to qualifying for a secured, asset-backed loan.

 

• Rates and Fees: Historically, rates will be much lower for secured loans mainly because there’s much less risk for the lender. If the business defaults on the loan, the lender can sell the business assets to regain the money that was lost. For unsecured loans, the rates will be higher to compensate for the lack of collateral.

 

• Loan amounts: With little to no lender risk with secured loans, lenders are more willing to allow you to borrow a larger sum of money (i.e. at least $250,000) as long as you have the collateral to back it. With unsecured loans, there’s a much higher lender risk which usually translates to lower maximum loan amounts.

 

• Repayment period: Unsecured loans, the time you have to repay your loan will generally be shorter than a repayment term available with a secured loan.

 

 

Unsecured business loan options

Merchant Cash Advance: A merchant cash advance (MCA) is another option for businesses to obtain capital. With an MCA, a business can receive a lump sum of cash upfront in exchange for a percentage of future credit card sales. The repayment structure of a merchant cash advance is typically based on a fixed percentage of daily credit card sales, which means that the amount paid back each day can fluctuate based on the business’s sales volume.

Line of credit: A line of credit works like a revolving capital, similar to a credit card. Your business will be approved for a set amount of credit, and you can draw on that amount when needed, only paying interest on the balance you owe.

Small business loan: A small business loan provides a lump sum of working capital, supported by the business’s creditworthiness and repayment.

 

Applying for an unsecured business loan

When applying for an unsecured business loan, lenders may assess your personal creditworthiness. They will also consider how many years you’ve been in business and your annual business revenue. Required documents may include a business plan, credit report and financial statements, a business banking account, bank statements, business license, legal documents, and tax returns.

Unsecured business loans provide small businesses with flexible financing options without the need for collateral. While they may carry higher rates than secured loans, they offer a faster repayment timeline. If you have any questions or would like to speak with a business advisor about unsecured business loan options, contact Vital Funding Solutions at (888) 596-3682.