If you’re in need of quick capital or lack substantial physical assets, an unsecured business loan could be a viable solution. These small-business loans are offered by banks, credit unions, and online lenders.
We’ll begin by asking you a few questions to better understand your business’s unique needs.
Once we identify your personalized matches, our team will guide you through the next steps in the process.
Understanding Unsecured Business Loans
An unsecured business loan is a form of financing that does not require you to pledge physical collateral such as business equipment, inventory, or real estate that the lender can seize in case of loan default. However, despite the absence of physical collateral, most unsecured loans are supported by either a personal guarantee or a Uniform Commercial Code lien.
Personal Guarantee vs. UCC Lien
A personal guarantee holds you accountable for the debt if your business fails to repay, allowing the lender to seize your personal assets in case of default.
A UCC lien gives the lender the right to seize your business assets if the loan is not repaid. The lien may apply to specific assets or be a blanket lien covering all business assets necessary for debt recovery.
Working Mechanism of Unsecured Business Loans
Unsecured business loans typically operate similar to other forms of debt financing – you apply for a loan, receive funds, and repay the borrowed amount over time with interest.
Unsecured business loans usually have a faster funding process compared to secured business loans since lenders do not need to evaluate the value of your collateral. However, the lack of collateral makes them riskier for lenders, resulting in higher interest rates and potential requirements for personal guarantees or UCC liens.
Varieties of Unsecured Business Loans
There are various types of unsecured business funding alternatives, including:
Business Term Loans
Term loans are what typically come to mind when thinking about business loans. These loans involve lump-sum capital that you borrow from a lender and repay over a set period. This loan type is ideal for financing specific investments or purchases for your business.
Business Lines of Credit
Credit lines provide a flexible form of financing that enables you to borrow up to a predetermined limit and pay interest only on the amount used. As you repay the balance, the funds become available for borrowing again. Unsecured business lines of credit can be utilized for working capital, short-term expenses, and emergency funds.
Invoice Factoring
Invoice factoring allows you to sell your unpaid invoices to a factoring company in exchange for cash advances. The company takes control of the invoices and collects payment directly from your customers. While factoring companies may require established invoicing practices and a certain business tenure, a personal guarantee is often unnecessary as you’re directly selling the asset.
Merchant Cash Advance
With a merchant cash advance (MCA), you receive a cash advance based on your sales, which you repay with a portion of your future sales. MCAs are typically easier to qualify for than other types of business financing, but they are costly and risky, making them a last-resort choice.