Online lenders have disrupted the traditional market for small-business loans, according to The State of Small-Business Lending from Harvard Business School. Now there is a wide range of direct lenders and marketplaces funding a variety of business loans at competitive interest rates.
One such loan product is the unsecured option, which offers collateral-free cash. Business owners can get approved based on factors such as their length of time in business, personal credit and their annual income.
Is an unsecured business loan the right option for your company? Let’s weigh the pros and cons.
Pros of unsecured business loans
- It’s easier to complete the loan application process because you don’t have to supply collateral (such as a home or car). The entire processing of the loan can be completed online in as little as one business day.
- According to the U.S. Courts website, if you end up filing bankruptcy, unsecured debts without judgments are discharged, whereas secured debts are not.
- There are a variety of lenders with different qualification requirements, increasing your odds of getting approved.
Cons of unsecured business loans
- Unsecured loans typically have higher interest rates than secured loans, because they present a higher risk for the lender.
- If you default on the loan, it will go to collections and cause a negative mark on your credit report. Furthermore, if the party that owns your debt decides to take legal action and successfully obtains a judgment against you, it can use a variety of strategies to try to collect the debt from your business. Tactics can include garnishing your business’ bank account and placing liens on your business’ property or automobiles.
Is an unsecured loan right for your business?
If you want to get a business loan without collateral, an unsecured loan can help. But be aware that because of the consequences of defaulting, you want to ensure you are able to afford the payments. You’ll want to shop around for a lender that suits your specific needs and will give you a competitive interest rate.
Depending on your business’ unique situation, certain lenders probably will be better than the others. For example, Prosper only considers personal credit when approving borrowers for its business loans. This is helpful if you have a good credit score but won’t qualify for other business loans because, say, your business is too new or doesn’t make enough money yet. On the other hand, if your personal credit isn’t so good but your business is more established, LendingClub or Balboa Capital will be the better option, as they factor business income and years in business into their approval process.
We reviewed various lenders that provide unsecured business loans and compiled our top picks.
Best lenders for unsecured business loans
LendingClub is the largest online marketplace lender that connects borrowers with investors. It looks at both business and personal information during qualification.
- Interest rates: Fixed rate, ranging from 5.9% to 25.9% annual percentage rate (APR)
- Repayment terms: From one to five years
- Loan amount: From $5,000 to $100,000
- Qualifications: Two years in business, minimum of $75,000 in annual sales, no bankruptcies or tax liens and fair or better credit
BitBond is a marketplace bitcoin lender that connects borrowers with investors worldwide. It primarily caters to borrowers who sell on eBay or have an online business.
- Interest rates: Start at 1% per month
- Repayment terms: From six weeks to five years
- Loan amount: Up to $10,000
- Qualifications: You need to have at least one online account that you can connect to show business activity. It can be an account in which you make sales like eBay, a tool you use such as Google Analytics or a platform like LinkedIn that you use to connect with business partners. More than one is preferred.
Prosper is a marketplace lender, the first one established in the U.S. It connects borrowers with numerous investors to fund loans and only takes personal information into consideration.
- Interest rates: Fixed rate, ranging from 3% to 36% APR
- Repayment terms: From three to five years
- Loan amount: From $2,000 to $35,000
- Qualifications: A minimum credit score of 640, debt-to-income ratio under 50%, no bankruptcies in the last year and a maximum of seven credit bureau inquiries within the last six months
Balboa Capitalis a privately held finance company that was established in 1988. It has funded over $4.8 billion in loans since its inception.
- Interest rates: Not advertised, vary based on your credit
- Repayment terms: From three months to 12 months
- Loan amount: Up to $2 million
- Qualifications: All credit scores are considered, minimum of 12 months in business, no liens
Review and compare unsecured business loans
If your business needs an injection of funds and you want an unsecured loan, there are many lenders to choose from. Be sure to shop around and compare interest rates, repayment terms, loan amounts and qualification requirements. If you’d like to see a wide range of lenders in one convenient location, head over to our business loans review page and tick the box in the left-hand menu for unsecured loans. You will be able to read reviews by our company as well as by other business owners who have borrowed from the lenders so you can find the right fit.