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What Can Unsecured Business Loans be Used for?

You can use an unsecured business loan for almost any purpose. Some lenders will ask you to outline your reasons for applying while others will give you the freedom to use the loan funds as you see fit.

How Do Lenders Decide if My Business is Eligible for an Unsecured Loan?
Lenders look at a lot of factors to determine if you’re eligible for an unsecured loan. To qualify, you and your business will need to have strong credit. You also have to show an ability to repay the loan in the form of strong business financials.
Is It Hard to Get an Unsecured Loan for Business?

Whether getting an unsecured loan is hard depends on your business. With good credit and strong revenue, it should be relatively easy. If your business has poor credit and limited income, it will likely be hard.

I Don’t Qualify for an Unsecured Business Loan. What Alternative Options Are Available?

If you can’t qualify for a business loan, you can consider alternatives.

Equipment financing is a special type of loan that you can use to pay for any machinery and equipment your company needs.

Personal loans are loans given to you individually. You’re liable for the debt but can use the funds for your business.

Crowdfunding lets you raise money from others to help you start or expand your business.

Is a Down Payment Required for Unsecured Business Loans?
Whether a down payment is required will depend on the lender, but most will not require a down payment.
How Can I Qualify for the Best Unsecured Business Loan Rates?

To get the best rates for unsecured business loans, make sure your company has both good credit and high revenues.

Are There Separate Unsecured Business Loans for Startups?
Yes, there are businesses that specialize in unsecured business loans for startups.
How Can I Get an Unsecured Business Loan with Bad Credit?

While it is possible, it will be difficult to get an unsecured business loan with bad credit. Most companies and individuals with poor credit will need to get secured loans.

Will I Have to Sign a Personal Guarantee or Agree to a Uniform Commercial Code Lien?

There is a good chance your lender will ask for a personal guarantee or uniform commercial code (UCC) lien.

With a personal guarantee, you promise to repay your company’s loan even if your business isn’t able to. With a UCC lien gives the lender rights to certain collateral owned by the business, blocking the company from selling it. 

These are more commonly required if your business is new or has poor credit.

What Happens if I Default on My Unsecured Business Loan?

If you default on your unsecured business loan the lender can come after your company to collect what it owes. It will also damage your business credit.

If you signed a personal guarantee, you’ll have to pay the debt out of your personal funds.

Conclusion

Unsecured business loans are usually more expensive and harder to qualify for than secured loans. However, they don’t require collateral, which means businesses without significant assets can qualify and your company is putting less at risk. Though they can be expensive, they can provide your company with the funding it needs to grow. When applying, make sure to show that your company will repay the loan by showing its strong financial standing. Read our other article to find out how to choose the best unsecured business loan for your company.

About the Author

TJ Porter

TJ Porter

Personal Finance Writer

I have in-depth experience in reviewing financial products such as savings accounts, credit cards, and brokerages, writing how-tos, and answering financial questions both simple and complicated.

More about me

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