For a small-business owner, an unsecured business loan has an attractive advantage over a secured loan.
When the loan is secured, assets you use as collateral are at risk — perhaps your home, your business equipment or inventory. If your business goes south and you can’t pay the loan, the lender can take those possessions. Unsecured loans, on the other hand, place the burden of the risk on the lender. Numerous alternative lenders offer unsecured loans. They base approval on the strength of your business and annual revenue, your operating history and — to a lesser degree — your personal credit score.
There’s a catch, of course. Unsecured loans are pricier. But the higher approval rates, speed and convenience could make an unsecured business loan worth the extra cost for your business.
JUMP TO OUR RECOMMENDATIONS:
- If you’ve been in business for a year and have $50,000+ in annual revenue
- If you have $200,000+ in annual revenue and a 600+ credit score
- If you have good credit and need less than $100,000
- If you have unpaid invoices and want to avoid a credit check
- If you make at least $25,000 in annual revenue and have 600+ credit score
Below are options for entrepreneurs looking for an unsecured business loan or line of credit, as well as the qualifications needed for each lender.
If you have at least $50,000 in annual revenue: Kabbage
- You can borrow up to $100,000; draws repaid monthly over 6 or 12 months
- 32% to 108% APR
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qualifications |
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|---|---|---|
| Personal credit score | N/A | N/A |
| Time in business | 1 year | About 2 to 5 years |
| Annual revenue | $60,000 | About $100,000 to $10 million |
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Kabbage provides unsecured lines of credit in amounts from $2,000 to $100,000. It’s a good option for bad credit borrowers who need fast cash for short-term expenses, as the company does not have a minimum credit score to qualify. You’ll pay more for it, however, as Kabbage loans range from 32% to 108% APR. With a short repayment timeframe and a higher annual percentage rate, it’s likely not your best option for a larger expense, such a new piece of expensive equipment for your company.
Nerd note: Keep in mind that each new draw from the line starts its own six- or 12-month term with its own fee structure, so the cost of borrowing will increase.
Kabbage’s additional lending requirements:
- You need a business checking account or PayPal.
- Kabbage considers your business’s activity on social media accounts such as Facebook and Twitter. After approval, the company may use this data to decide whether to increase your credit limit.
If you have $200,000+ in annual revenue and a credit score of at least 600: OnDeck
- Borrow up to $100,000; draws repaid weekly over 6 months
- 14% to 36% APR
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| Personal credit score | At least one owner with 500 or higher for term loans and a majority owner with 600 or higher for lines of credit | A personal credit score over 600 |
| Time in business | At least 12 months | Median of 7 years |
| Annual revenue | $100,000 or more in the last year for term loans and $200,000 or more for lines of credit | Median of $600,000 |
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OnDeck’s unsecured business line of credit is a good option for businesses that need working capital to manage cash flow or handle unexpected expenses.
With a credit line, you’ll have access to cash that you can borrow whenever needed. Each individual draw on the line of credit is repaid weekly over a period of six months, and borrowers can choose to repay sooner to save on interest with no prepayment penalties.
OnDeck’s additional lending requirements:
- No personal bankruptcy within the last two years
- You can’t be on the company’s restricted industries list.
Unlike OnDeck’s term loans, its lines of credit do not require a lien on your business’s assets, although you’ll still have to sign a personal guarantee, which makes you personally liable for repaying the debt if you business fails to.
To apply, you have to provide a business tax ID, three months of credit card statements, one to three months of bank statements, a driver’s license number and a Social Security number.
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If you need to borrow less than $100,000 and have good credit: Lending Club
- No collateral required on loans under $100,000
- 8% to 32% APR
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Minimum qualifications |
Typical borrower |
|---|---|---|
| Personal credit score | 600 | 700 |
| Time in business | 2 years | 11 years |
| Annual revenue | $75,000 | $1 million |
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Lending Club offers term loans and lines of credit up to $300,000, but collateral is required if you borrow more than $100,000 on either product.
The lender’s APR ranges from 8% to 32%, making its loans slightly more expensive than SBA loans but competitive with online lenders such as OnDeck and Kabbage. There’s no prepayment penalty, so you can repay your loan early to save on interest.
Lending Club’s additional lending requirements:
- Three months of business bank account statements
- Past year of business tax returns
- IRS Form 4506-T
Lending Club does not offer small-business loans to borrowers in Idaho and Iowa.
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If you have unpaid invoices: Fundbox
- Cash advance payment based on the value of your invoices
- 44% to 64% APR
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Minimum qualifications |
|---|---|
| Personal credit score | None required |
| Time in business | No minimum — six months of activity in an online accounting or bookkeeping software required |
| Annual revenue | None required |
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Fundbox provides an unsecured cash advance (no collateral or personal guarantee required) that’s up to 100% of the value of your unpaid invoices. After receiving the cash advance, you’ll repay it in 12 equal weekly installments, plus a fee. If your customer ends up paying you before then, you can repay the advance in full to save on fees, with no penalties.
Here are Fundbox’s requirements::
- Unpaid invoices
- At least six months of activity in an online accounting or bookkeeping software application, such as Xero or Quickbooks
If you own a newer business and have $25,000+ in annual revenue: StreetShares
- Borrow from $2,000 to $100,000 and repay the loan weekly over a period of three to 36 months
- 8% to 40% APR
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|---|---|---|
| Personal credit score | 600 | 705 |
| Time in business | 1 year* | 4 1/2 years |
| Annual revenue | $25,000 | $700,000 to $800,000 |
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| *If you make more than $100,000 in annual revenue, the required time in business drops to six months. | ||
StreetShares offers term loans up to $100,000, with no collateral or liens required. To qualify, borrowers will need a personal credit score of at least 600, with minimum annual revenue of $25,000 and at least one year in business, although this requirement drops to six months if you’ve already made $100,000 in revenue.
Borrowers should also take note that the maximum loan amount you can qualify for is 20% of your annual revenue. For example, if you make $300,000 a year, you’ll be limited to a maximum loan of $60,000. Loans carry repayment terms of three to 36 months, but can be paid back early at any time with no prepayment penalties.
StreetShares additional lending requirements:
- No bankruptcies in the past three years.
- No current tax liens or collections.
- StreetShares does not lend to businesses in North Dakota or South Dakota
Unsecured business loans: the bottom line
Unsecured business loans will likely carry a higher APR than secured business loans, but they typically come with higher approval rates and faster funding. Although you don’t need collateral to qualify, you may still need to show strong business revenue, several years of operating history and have fair or better personal credit — though this will depend on each individual lender’s requirements.
Find and compare the best small-business loans
NerdWallet has created a comparison tool for the best small-business loans to meet your needs and goals. We gauged lender trustworthiness and user experience, among other factors, and arranged them by categories that include your revenue and how long you’ve been in business, so that you know which loans you qualify for.
Steve Nicastro is a staff writer at NerdWallet, a personal finance website. Email: Steven.N@nerdwallet.com. Twitter: @StevenNicastro.
To get more information on and compare funding options for your small business, visit NerdWallet’s small-business loans page. For free, personalized answers to questions about starting and financing your business, visit theSmall Business section of NerdWallet’s Ask an Advisor page.
This post was updated. It was originally published Nov. 10, 2015.
Image via iStock.
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