Finimpact
What are unsecured business loans used for?
Your company can use an unsecured business loan for many different purposes. For example, you can use the funds to purchase inventory, pay supplier invoices, cover unexpected one-off costs, or expand your operations.
What are unsecured business loans lending criteria?

When considering an unsecured business loan application, lenders look at many factors. Different types of businesses can apply, including LLCs, sole proprietors, and partnerships. Lenders will have different things they look for depending on the way the business is organized.

Some general factors that lenders will look at include:

  • Business age

  • Business credit score

  • Revenue

  • Existing debt

How does an unsecured loan compare to a term loan?
A term loan is a type of loan. Some unsecured loans are term loans that offer a lump sum of cash that you repay over time. While unsecured loans require no collateral, some similar secured loans do require collateral. For example, a loan used to finance a piece of major equipment is often secured by that equipment.
What information do I need for my unsecured business loan application?

When you apply for any type of loan, whether it’s secured or unsecured, you’ll need to give the lender enough information to make a lending decision. That includes things like:

  • The name of your company

  • How your company is organized

  • Your industry

  • Names and addresses of owners and directors

  • Business financials for the past few years

  • An explanation for why you’re applying for the loan and how you’ll use the funds

What happens if I default on an unsecured loan?
With a secured loan, defaulting means the lender can foreclose on or repossess the collateral. However, just because unsecured loans don’t require collateral doesn’t mean there aren’t consequences.

If you stop making payments, the lender will likely take legal action to try to recover as much money as it can. If you provided a personal guarantee, the lender could come after your personal assets to try to get the loan repaid.
What is the main advantage of an unsecured loan?

The main advantage of unsecured loans is that they make it easier for businesses to borrow money.

Secured loans can be complicated and take a long time to get because the lender has to examine and verify the collateral asset. Businesses that lack valuable assets also can’t get secured loans because they don’t have anything to offer as collateral.

While unsecured loans are more expensive and require better credit, they can make it much easier for businesses to borrow needed cash.

Conclusion

Unsecured business loans with no personal guarantee require better business credit and tend to cost more, but they will reduce the risk you face if your company defaults. Before applying, research different lenders, make sure you’re eligible, and gather as many details as possible to make sure you can submit a strong application.


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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