Business Loans Without Collateral: Your Guide to Unsecured Financing

You don't need to put your house, equipment, or inventory on the line to get a business loan. 

Unsecured business loans exist specifically for owners who either don't have assets to pledge or simply don't want to risk them. 

These loans are approved based on your creditworthiness, revenue, and business performance rather than what you can offer as security. 

The tradeoff is usually higher interest rates and sometimes smaller loan amounts. 

But for many business owners, keeping their assets protected is worth that cost.

What Is an Unsecured Business Loan?

An unsecured business loan is financing that doesn't require you to pledge specific assets as collateral. If you default on a secured loan, the lender can seize whatever you put up. A car loan is secured by the car. A mortgage is secured by the house. Miss enough payments and the lender takes the asset.

Unsecured loans don't work that way. There's no specific asset tied to the loan that the lender can automatically claim. Instead, the lender is relying on your promise to repay, backed by your credit history and your business's financial strength.

That doesn't mean there's zero risk to you. Most unsecured business loans still require a personal guarantee, which means you're personally responsible if your business can't pay. And if you default, the lender can still pursue legal action and potentially go after your assets through the courts. But there's no automatic lien on your property from day one.

The distinction matters. With an unsecured loan, you maintain control of your assets while you're making payments. You can sell equipment, use inventory as you see fit, and operate without a lender's claim hanging over specific property.

Secured vs Unsecured: What's the Real Difference?

The difference comes down to what happens if things go wrong.

Secured loans give the lender a direct claim on specific assets. You put up collateral, the lender files a lien, and if you stop paying, they have a clear path to recover their money. Because this reduces the lender's risk, secured loans typically come with lower interest rates and higher approval odds. Banks love collateral.

Unsecured loans leave the lender without that safety net. If you default, they have to sue you, get a judgment, and then try to collect. That's more expensive and uncertain. To compensate for the added risk, lenders charge higher rates on unsecured financing.

According to a 2023 Federal Reserve study on small business lending, interest rates on unsecured loans averaged 2 to 4 percentage points higher than comparable secured loans from the same lenders. The exact spread varies by loan type and borrower profile, but the pattern is consistent: no collateral means higher cost.

Here's a quick comparison:

Neither option is universally better. It depends on what assets you have, what risk you're comfortable with, and what rates you can access.

Types of Unsecured Business Financing

Several financing products don't require collateral. Here's what's available.

Unsecured Term Loans

These work like any other term loan. You borrow a fixed amount, repay it over a set period with interest, and you're done. The only difference is that no assets secure the debt.

Online lenders are the primary source for unsecured term loans. Banks occasionally offer them to long-standing customers with excellent credit, but it's not common. Most small business loans from traditional banks require some form of security.

Loan amounts for unsecured term loans typically range from $5,000 to $500,000, depending on your revenue and credit profile. Terms run anywhere from three months to five years. Rates vary widely based on your qualifications, but expect something in the 15% to 40% APR range for most borrowers.

Business Lines of Credit

A business line of credit gives you access to funds you can draw on as needed, up to a set limit. Most lines of credit are unsecured, especially those from online lenders.

The flexibility is the main appeal. You're not borrowing a fixed amount for a specific purpose. You're establishing access to capital you can tap whenever you need it. Draw $10,000 this month, pay it back, draw $25,000 next quarter. You only pay interest on what you actually use.

Unsecured lines of credit range from $5,000 to $5 million depending on your business's size and financials. Rates typically start around 10% for well-qualified borrowers and go up from there.

Merchant Cash Advances

MCAs are technically purchases of future revenue rather than loans, but they function similarly for practical purposes. You get cash upfront, and the provider collects repayment as a percentage of your daily sales.

No collateral required. Approval is based almost entirely on your sales volume and cash flow. Credit scores matter less than with other products.

The cost is high. Factor rates typically range from 1.2 to 1.5, which translates to effective APRs of 40% to 100% or more depending on repayment speed. But if you need same-day funding and don't have assets to pledge, MCAs deliver.

Invoice Factoring

If your business invoices other businesses, you can convert those receivables into immediate cash through factoring. A factoring company advances you 80% to 90% of the invoice value upfront, then collects from your customer directly.

This is unsecured in the sense that you're not pledging equipment or real estate. The "collateral" is the invoice itself. But since the factoring company collects from your customer rather than from you, your personal assets aren't at risk.

Factoring works especially well for businesses with cash flow gaps caused by slow-paying customers.

SBA Loans (Some)

SBA loans are often secured, but not always. The SBA's lending guidelines require collateral for loans over $25,000 when it's available, but they don't require borrowers to put up collateral they don't have.

In practice, this means some SBA loans, particularly smaller ones and those to borrowers without significant assets, can be effectively unsecured. The SBA 7(a) program, which is the most common, requires lenders to follow collateral policies but allows loans to proceed even when collateral is insufficient.

SBA loans still require personal guarantees from anyone owning 20% or more of the business. So you're not off the hook personally. But you might not have to pledge specific property.

Business Credit Cards

Often overlooked as a financing tool, business credit cards are unsecured revolving credit. You get a credit limit, charge what you need, and pay it back with interest if you carry a balance.

Credit limits are usually lower than lines of credit or term loans. But cards are easy to get, require no collateral, and can cover smaller expenses or bridge short gaps. Some business owners use cards strategically for purchases that earn rewards, then pay off the balance quickly.

Who Qualifies for Unsecured Business Loans?

Because lenders can't fall back on collateral, they're pickier about who they'll approve for unsecured financing.

Credit Score Requirements

Most lenders want to see personal credit scores of 650 or higher for unsecured loans. Some online lenders work with lower scores, but you'll pay significantly more.

Your business credit score matters too, if you have one. A strong business credit profile can help offset a mediocre personal score.

The higher your credit, the better your options. Borrowers with scores above 700 have access to lower rates and higher loan amounts. Those below 600 will find unsecured financing harder to come by and more expensive when they get it. Our guide on bad credit business loans covers options for lower credit profiles.

Revenue Thresholds

Lenders want to see that your business generates enough revenue to handle payments comfortably. Most unsecured loan providers require at least $100,000 to $150,000 in annual revenue, though some work with businesses generating as little as $50,000.

Consistency matters as much as the total. Steady monthly deposits look better than erratic swings even if the annual total is the same. Lenders are trying to predict whether you can reliably make payments. Consistent revenue makes that prediction easier.

Time in Business

Newer businesses are riskier, and that risk is magnified without collateral. Most unsecured lenders want to see at least one year in business, often two.

If your business is newer, your options narrow. Short-term loans from alternative lenders or merchant cash advances might still be available. But the best unsecured loan terms typically go to established businesses with track records.

Debt-to-Income Ratio

Lenders look at how much debt you're already carrying relative to your income. If you're heavily leveraged, adding another loan payment creates risk. They want to see room in your cash flow.

Paying down existing debt before applying can improve your approval odds and potentially get you better terms.

The Personal Guarantee Question

Here's something that confuses a lot of business owners: most unsecured business loans still require a personal guarantee.

Wait, if there's no collateral and there's a personal guarantee, what's the difference from a secured loan?

The difference is timing and process. With a secured loan, the lender has an immediate claim on specific property. They can repossess equipment or foreclose on real estate through established procedures. With an unsecured loan and personal guarantee, the lender has to sue you, win a judgment, and then figure out how to collect. Your assets aren't pre-committed.

That matters more than it might seem. During the life of the loan, you maintain full control of your property. If you need to sell equipment or refinance real estate, there's no lien to deal with. And if things go badly, the collection process is slower and more complicated for the lender, which sometimes creates room to negotiate.

Some financing options don't require personal guarantees at all. Certain merchant cash advances, some invoice factoring arrangements, and a few specialized products skip the guarantee. But they're exceptions. Assume any unsecured loan will require your personal signature unless you confirm otherwise.

Pros and Cons of Unsecured Business Loans

Advantages

No asset risk during the loan. Your equipment, inventory, and property don't have liens against them. You maintain flexibility to sell, refinance, or use assets as you see fit.

Faster approval. Without collateral to appraise and verify, unsecured loans often close faster. Some fund within one to three days.

Available without assets. Service businesses, newer companies, and asset-light operations can still access financing. You don't need equipment or real estate to pledge.

Simpler process. No appraisals, no lien filings, less documentation. The application is typically more straightforward.

Disadvantages

Higher interest rates. The lack of collateral increases lender risk, and you pay for that through higher rates. Expect to pay 2% to 10% more than you would on a comparable secured loan.

Lower loan amounts. Lenders limit their exposure on unsecured loans. You might qualify for less than you would with collateral.

Stricter qualification requirements. Without collateral as a backstop, lenders rely more heavily on credit scores and revenue. Weaker applications get rejected.

Personal guarantee still applies. You're still personally liable in most cases. The protection is against pre-committed asset liens, not against all liability.

How to Improve Your Chances of Approval

If you're targeting unsecured financing, here's how to strengthen your application.

Build your credit score. Pay down credit card balances, make all payments on time, and dispute any errors on your credit report. Every point helps.

Show strong, consistent revenue. Lenders want to see healthy bank statements. If your revenue has been growing, that's a good story. If it's been declining, address why before applying.

Reduce existing debt. Lower debt-to-income ratios make you more attractive. Pay off what you can before seeking new financing.

Prepare clean documentation. Have your bank statements, tax returns, and financial statements organized and ready. Disorganization raises red flags.

Apply for an appropriate amount. Requesting more than your revenue can support signals poor judgment. Match your request to what you can realistically handle.

Consider starting with a smaller amount. A modest line of credit or small term loan builds your relationship with a lender. Repay it successfully, and you'll have better options next time.

Where to Find Unsecured Business Loans

Different lenders specialize in different products.

Online lenders are the primary source for unsecured term loans and lines of credit. Companies like Fundbox, BlueVine, OnDeck, and Kabbage (now part of American Express) all offer unsecured products. They move fast and work with a range of credit profiles.

Banks and credit unions occasionally offer unsecured loans to established customers with strong credit, but it's not their focus. If you have a long relationship with a bank, it's worth asking. Otherwise, look elsewhere.

SBA lenders can sometimes structure loans without specific collateral. Ask about options if you're pursuing SBA financing.

MCA providers offer unsecured advances to businesses with strong sales. They're expensive but accessible.

Factoring companies work with your receivables rather than your assets. If you invoice other businesses, this is worth exploring.

When comparing offers, look at the total cost of borrowing, not just the stated rate. Fees, repayment terms, and APR equivalents all matter. Our overview of business loan interest rates can help you benchmark what you're seeing.

Frequently Asked Questions

Can I get a business loan with no collateral and no personal guarantee?

It's rare but possible. Some merchant cash advances and invoice factoring arrangements don't require personal guarantees. A few specialized lenders offer non-recourse financing to established businesses with very strong profiles. But for most small businesses, a personal guarantee is standard even on unsecured loans.

What's the easiest unsecured business loan to get?

Merchant cash advances have the lowest qualification barriers because they're based on sales volume rather than credit or collateral. Business credit cards are also relatively easy to obtain. Among actual loans, short-term products from online lenders tend to have the most accessible requirements.

How much can I borrow without collateral?

It depends on your revenue and credit profile. Unsecured lines of credit range from $5,000 to $5 million. Term loans typically max out lower, often around $500,000 for unsecured products. Most small businesses qualify for somewhere in the $25,000 to $250,000 range without collateral.

Are unsecured business loans more expensive?

Yes, typically by 2% to 10% in interest rate compared to secured alternatives. The exact difference depends on the lender and your profile. You're paying a premium for not pledging assets.

How fast can I get an unsecured business loan?

Some online lenders approve and fund within 24 to 48 hours. Lines of credit can often be set up within a few days. The lack of collateral appraisal speeds up the process compared to secured loans.

Will an unsecured loan hurt my credit?

The application typically involves a credit check, which has a minor short-term impact. If you're approved and make all payments on time, the loan should help your credit over time. If you miss payments or default, it will hurt your score significantly.