Securing financing for your business is tricky, but it can be even more difficult if you’re looking for a loan or line of credit that doesn’t require any collateral. Starting a business is a big investment, and you may not want or even be able to put up collateral to obtain financing.
Luckily, you do have options for business loans and lines of credit that don’t require you to put up any collateral. Here’s what you need to know about unsecured loans and lines of credit for your business before you head down to the bank:
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What Is an Unsecured Loan?
Many loans require the borrower to put up some form of collateral, which is any asset — such as cash, investments, real estate, automobiles, or any other valuable items — that is equal to or greater than the value of the loan in order to secure it. This is called a secured loan. The collateral protects the lender, because if the borrower defaults on loan payments, they can seize it in lieu of the payment. Secured loans are a great option for people who have no credit or those who have poor credit, as lenders may view them as too risky to lend to without some kind of security.
However, an unsecured loan doesn’t require the borrower to put up any collateral. Generally speaking, you need to have a good or excellent credit score to qualify for an unsecured loan. Lenders may ask you to sign a personal guarantee, which gives them permission to go after your personal assets if you default on your payments. Unsecured loans also often have a higher annual percentage rate (APR) to help protect the lender.
There are also unsecured lines of credit, and although they’re similar to a loan, they aren’t quite the same. The biggest difference between a loan and a line of credit is how you receive your money. Loans are paid out in a single lump sum, while lines of credit are more flexible, allowing you to borrow and repay money on a consistent basis. Whether you want an unsecured loan or line of credit simply depends on your own personal preference and what you think would make the most sense for your business.
Unsecured Business Loans
There are several institutions and online services that offer unsecured business loans. Many of these lenders don’t require a high credit score for you to qualify, have flexible terms, and are based entirely online. This makes funding even more accessible to a greater number of business owners. Some of the best places currently offering unsecured business loans include:
Lending Club
Lending Club offers unsecured loans up to $500,000 to business owners. You can apply online, and you’ll have quick access to your funds once you’re approved.
To qualify, your business must be at least 12 months old, generate at least $50,000 in annual sales, and have no recent bankruptcies or tax liens. In addition, you must also own at least 20% of the business and have at least fair personal credit.
LendingClub also offers flexible repayment terms, from a minimum of six months to a maximum of five years, with a fixed interest rate. They also allow you to pay off your loan early if you want, which reduces the total amount of interest paid on the loan.
LoanBuilder
LoanBuilder is a great loan option for newer businesses, as they offer funding to business owners whose organizations are as young as nine months old. Their loans range from $5,000 to $50,000. Though they offer unsecured loans, they do require you to sign a personal guarantee form.
To qualify, your business must earn an annual income of $42,000, be at least nine months old, not have any active bankruptcies, and be located in the United States. You must also have a minimum credit score of 550. Businesses in certain industries are automatically ineligible, including nonprofit and religious organizations, businesses related to gambling, and gun retailers. The complete list of ineligible industries can be found on the Frequently Asked Questions section of their website.
StreetShares is a veteran-run organization that offers small business loans and lines of credit (though you don’t need to be a veteran to be eligible). You can use their online application to determine whether or not you qualify for a loan.
To qualify, you must be a U.S. citizen and have reasonable personal credit, and your business must be at least a year old (or at least six months old, in certain situations) and earning a minimum amount of revenue. StreetShares provides loans ranging from $5,000 to $250,000. However, the maximum loan amount you can receive is 20% of your business revenue. For example, if your business earns $100,000 annually, you are only eligible for a $20,000 loan.
No Collateral Line of Credit of Businesses
There are several institutions and online services that offer unsecured lines of credit. Many of these lenders don’t require a high credit score for you to qualify, have flexible terms, and are based entirely online, making funding even more accessible to a greater number of business owners. Some of the best places currently offering unsecured lines of credit for businesses include:
BlueVine
BlueVine offers fast funding for small businesses. It takes up to 12 hours to get approved, and you can receive your line of credit 24 hours after approval. They offer lines of credit up to $250,000 and only charge interest and fees on what you use, rather than the entire amount of the loaned funds.
Their eligibility requirements are a little higher than some of the other options listed here. To qualify, you must have a FICO score of at least 600, your business must be at least six months old, and it must earn at least $100,000 in annual revenue.
Kabbage
Kabbage is an online platform that connects small business owners with funding for their ventures in the form of lines of credit. You can apply online for free and are under no obligation to take the funds you qualify for. You can get up to a $250,000 line of credit.
Though they do take your credit score into account, Kabbage also considers how well your business is performing. The minimum qualification requirements are fairly simple: you must have a credit score of at least 560, your business must be at least a year old and earn $50,000 annually or $4,200 per month over the last three months before applying.
OnDeck
OnDeck provides unsecured lines of credit of up to $100,000 to small businesses. You do have to sign a personal guarantee form to receive funding. Unlike other lenders on this list, they do charge a $20 monthly maintenance fee for a line of credit.
To qualify, you must have a personal credit score of 600 or higher and have a business that is at least a year old that earns a minimum of $100,000 in gross annual revenue. Though OnDeck lines of credit are more difficult to qualify for, they have a much lower APR than other loan providers on this list.
Read the Fine Print
Regardless of who you choose to borrow from, it’s important to always read the fine print when taking on a loan or a line of credit. You should know exactly what you’re getting into before making a commitment. Taking on debt to help grow your business is a smart financial decision, but if you neglect to learn the exact terms of your loan, it could ultimately do more harm than good.
Lenders will do what they can to protect themselves from borrowers who might default on payments or fail to pay back their debt. Unsecured loans and lines of credit offer fast funding, larger loan amounts, and less risk to your assets, but you won’t be able to fully take advantage of those benefits if you leave yourself and your business in a vulnerable position.
Don’t settle for the first loan you happen to qualify for. Take your time, do your research, read all of the fine print, and try to find the loan or line of credit that works best for you.
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