Unsecured small business loans can be an attractive form of small business financing because they require no personal collateral. Generally, when an entrepreneur starts a small business or franchise, they pledge personal assets, like their home, in order to obtain the necessary small business financing.
While SBA loans are typically the first form of financing that comes to mind, momentum is shifting toward unsecured loans for businesses under $150,000. Through an unsecured loan, you can gain access to capital in as little as a week, and do not have to use your home, savings or other assets as collateral. Unsecured small business loans are granted primarily based on your credit history – not your personal balance sheet. Your signature guarantees payment - which is why unsecured loans are often referred to as a signature loans.
You can generally qualify for unsecured financing if you have a credit score (FICO) above 700 and your credit utilization is less than 50%. That means that if your total available credit is $10,000, you have an outstanding balance of less than $5,000. There is no requirement that you own a home or have a certain amount in savings.
Unsecured small business loans are generally more expensive to originate, are amortized over a shorter time period (five to seven years) and the interest rates will vary from 8-25%. Because the bank takes on more risk by being unsecured, these loans can be more expensive. If you are contemplating using unsecured small business loans as a form of small business financing, take the time to ensure your business can support the payments.
Entrepreneurs appreciate unsecured small business loans because the bank carries much of the risk, and the capital can be accessed quickly. For more information on unsecured small business loans fill out our form to the right.