What an Unsecured Business Loan Actually Means #
A business loan is money you borrow and repay with interest or fees. "Unsecured" means one thing: the lender has no claim on a particular asset if you stop paying. You are not putting a truck, a building or a piece of machinery on the line.
That does not mean the loan carries no risk for you. Many unsecured business loans still require a personal guarantee, covered below. It also does not mean the lender takes no risk. With less to fall back on, they price the loan higher. You need to understand that pricing before you sign.
Secured vs. Unsecured: The Practical Difference #
A secured loan gives the lender something specific to recover if you default. An equipment loan is secured by the equipment. A commercial mortgage is secured by the property. Because the lender can approve on the strength of that asset, the rate tends to be lower and the approval standards can be looser.
An unsecured loan skips the asset. The lender decides based on your cash flow, your credit history and how long you have operated. Your assets stay unpledged, which matters if your equipment is already pledged elsewhere or you do not own property at all.
The trade-off is simple: you pay a higher price for speed and flexibility. For many owners, especially those who need money this month, that trade is worth it. For others, a secured loan at a lower rate is the smarter path, and we say so when it applies.
What Unsecured Business Loans Cost #
Unsecured loans come in several forms, and each is priced differently. To compare them fairly, look at the total you repay, not the headline number.
| Option | Typical cost | Speed | What it needs |
|---|---|---|---|
| Bank term loan (unsecured) | Usually the lowest APR of the unsecured group, but only for strong credit | Often several weeks | Strong credit, years in business, full financial documents |
| SBA 7(a) loan | Interest rates capped by SBA rules; often competitive. Not always fully unsecured, since collateral may be requested | Often several weeks to a few months | Eligibility rules, detailed paperwork |
| Business line of credit | Variable APR; you pay interest only on what you draw | Can be fast once approved | Steady revenue and a credit review |
| Online term loan | Interest rate or factor rate (for example, 1.20 over 12 months ≈ 33–36% APR); usually well above a bank loan's APR | Often within days | Consistent deposits, moderate credit, recent bank statements |
| Merchant cash advance | Factor rate (for example, 1.25 over 8 months ≈ 60–75% APR); usually well above a bank loan's APR | Often within days | Regular card or bank deposits; repayment tied to sales |
| Secured equipment loan (for comparison) | Usually lower than unsecured options | Varies with the lender and the equipment | The equipment itself as collateral |
Some lenders quote a factor rate instead of an interest rate. You multiply the amount you receive by this figure to get the total you will repay. It is not an annual rate, and it can make a product look cheaper than it is.
For example, a 1.25 factor on a $10,000 advance means you repay $12,500. If you repay that over 8 months, the cost works out to roughly 60–75% APR. The same 1.25 factor repaid over 18 months works out to roughly 28–32% APR. The repayment period matters as much as the factor.
A 1.20 factor over 12 months on $10,000 (repaying $12,000) works out to roughly 33–36% APR. That is expensive compared with a bank loan. It can still be the right price when a bank says no, or says "wait several weeks" and you do not have several weeks.
Always ask for the total repayment amount, the payment schedule and the APR equivalent. A reputable lender will give you all three without a fight.
Who Qualifies, Including Startups and Owners with Bad Credit #
Qualification depends on the lender category. Banks and SBA lenders usually want time in business, solid credit and clean financial statements. Online and revenue-based lenders weigh recent revenue and bank deposits more heavily.
Startups have a harder time with bank and SBA loans, which usually prefer at least two years of operating history. Some online lenders will consider a business with a few months of consistent deposits, and some look more closely at the owner's personal credit and income. Expect higher cost and smaller amounts.
Owners with bad credit can still find options, but the cost will reflect the risk. Revenue-based products often focus on sales volume rather than credit score, which is why they stay available when banks decline. Read the total cost carefully and make sure the payment fits your cash flow.
Expect any lender to look at your personal credit, because personal guarantees are common.
Where to Find Them: Banks, SBA Loans, Lines of Credit and Online Lenders #
Each category does one job well.
Banks offer the lowest rates to qualified borrowers. They are also the slow default: thorough documentation, waits of weeks, and frequent declines for newer businesses or uneven credit. If your business is established, your financials are clean and you can wait, a bank is the right first call. If you need money this month, the bank process often runs out of time before it reaches a yes.
SBA loans are government-guaranteed loans made by approved lenders. They can offer long terms and reasonable rates, but they take time and paperwork. They fit owners who can wait and want the most affordable long-term money.
Lines of credit let you borrow what you need, when you need it, and pay interest only on the amount drawn. They suit uneven cash flow or recurring short-term needs, such as seasonal inventory. They are not usually the right tool for a one-time large purchase.
Online lenders and revenue-based funders approve faster and accept more profiles. They charge more, and their repayment schedules can be tighter. They work best when you need money in days, have steady sales, and have a specific use for the funds that will earn back the cost. For an owner on a short clock, this is often the more direct path.
The right tool is not always the cheapest one. It is the one that gets you the money in time, at a cost your business can carry.
How to Decide and Check the Total Cost Before You Sign #
Start with three questions. How fast do you need the money? What will it earn or save you? What will the payment do to your cash flow in your slowest month?
Then check the numbers before you sign:
- Ask for the total repayment amount in dollars, not just the rate.
- Ask for the APR equivalent, or calculate it from the term and total repaid.
- Confirm the payment frequency. Daily or weekly debits change how much cash you need on hand.
- Check the prepayment terms. Some products charge the full factor even if you pay early.
- Read the personal guarantee language and know what you are personally liable for.
- Compare at least two offers, from different categories if possible.
If a lender cannot tell you the total cost in writing, do not sign.
Will an unsecured business loan work for my business? #
Are small business loans secured or unsecured?
Both exist. Many are secured by equipment, property or other assets, and many are unsecured. Unsecured loans rely on your credit, revenue and time in business instead of collateral. Ask any lender which type you are being offered, and check the loan agreement for collateral. If it lists specific assets, the loan is secured by them. If it lists none, the loan is unsecured, though a personal guarantee may still apply.
Can a startup get an unsecured business loan?
Yes, but the options are narrower. Banks and SBA lenders usually prefer at least two years of operating history, so many startups turn to online lenders or personal financing. Some online lenders will consider a business with a few months of consistent deposits. Expect smaller amounts and higher costs. Bring your personal credit, your revenue and a clear explanation of how the money will generate the cash to repay it.
Can I get an unsecured business loan with bad credit?
Sometimes. Revenue-based and merchant-style products often weigh sales volume more than credit score, so they stay available when banks decline. The tradeoff is cost. Read the total repayment and APR equivalent closely, and confirm the daily or weekly payment fits your slowest month. A smaller amount you can repay comfortably beats a larger one that strains your cash flow.
What does an unsecured business loan cost?
It depends on the lender category and your profile. Bank unsecured loans are typically the cheapest for qualified borrowers. Online term loans and merchant products usually cost more, and factor-rate products can look modest until you convert them. For example, a 1.20 factor over 12 months is roughly 33–36% APR. Before you compare offers, ask for the total repayment in dollars, the term and the APR equivalent.
Do unsecured business loans require a personal guarantee?
Often, yes. Many small business lenders ask the owner to sign a personal guarantee, which makes you personally responsible if the business cannot repay. Some larger or stronger businesses can avoid it, but do not assume you will. Read the guarantee language before signing, and ask whether it is limited or unlimited.
Which banks offer unsecured business loans, and are they the best option?
Many banks offer unsecured term loans and lines of credit, and terms vary by institution and borrower. A bank is often the best option when you have strong credit, several years of revenue, clean financial statements and time to wait. It is the wrong tool when you need money within days or your profile does not fit a bank's standards. If your timeline is short, start with faster options and compare them on total cost and APR equivalent.
When an Unsecured Loan Fits, and When It Doesn't #
An unsecured loan fits when you need money without pledging assets, when speed matters, and when the money will bring in more than it costs. It also fits when you have steady revenue and can carry the payments without squeezing payroll or supplier bills.
It does not fit when a bank or SBA loan would cost less and you can wait for approval. It does not fit when the money is for something that will not earn back its cost, or when the payment would consume most of your monthly cash. If the total repayment makes you uneasy, take that seriously.
If the numbers make sense for your situation, you are ready to compare real offers. To start your request, use the apply page and we will match your profile with our network of funding partners.
This guide is general information, not advice for your situation. Figures are illustrative; the terms that apply to you are only those in an agreement you sign. How we work and how we are paid.