For a small-business owner, an unsecured business loan has an attractive advantage over a secured loan.
When the loan is secured, assets you use as collateral are at risk — perhaps your home, your business equipment or inventory. If your business goes south and you can’t pay the loan, the lender can take those possessions. Unsecured loans, on the other hand, place the burden of the risk on the lender. Numerous alternative lenders offer unsecured loans. They base approval on the strength of your business and annual revenue, your operating history and — to a lesser degree — your personal credit score.
There’s a catch, of course. Unsecured loans are pricier. But the higher approval rates, speed and convenience could make an unsecured business loan worth the extra cost for your business.
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Below are options for entrepreneurs looking for an unsecured business loan or line of credit, as well as the qualifications needed for each lender.
If you have at least $60, 000 in annual revenue: Kabbage
- You can borrow up to $100, 000; draws repaid monthly over 6 or 12 months
- 32% to 108% APR
Kabbage provides unsecured lines of credit in amounts from $2, 000 to $100, 000. It’s a good option for bad credit borrowers who need fast cash for short-term expenses, as the company does not have a minimum credit score to qualify. You’ll pay more for it, however, as Kabbage loans range from 32% to 108% APR. With a short repayment timeframe and a higher annual percentage rate, it’s likely not your best option for a larger expense, such a new piece of expensive equipment for your company.
Nerd note: Keep in mind that each new draw from the line starts its own six- or 12-month term with its own fee structure, so the cost of borrowing will increase.
Kabbage’s additional lending requirements:
- You need a business checking account or PayPal.
- Kabbage considers your business’s activity on social media accounts such as Facebook and Twitter. After approval, the company may use this data to decide whether to increase your credit limit.
If you have $200, 000+ in annual revenue and a credit score of at least 600: OnDeck
- Borrow up to $100, 000; draws repaid weekly over 6 months
- 14% to 36% APR
OnDeck’s unsecured business line of credit is a good option for businesses that need working capital to manage cash flow or handle unexpected expenses.
With a credit line, you’ll have access to cash that you can borrow whenever needed. Each individual draw on the line of credit is repaid weekly over a period of six months, and borrowers can choose to repay sooner to save on interest with no prepayment penalties.
OnDeck’s additional lending requirements:
Unlike OnDeck’s term loans, its lines of credit do not require a lien on your business’s assets, although you’ll still have to sign a personal guarantee, which makes you personally liable for repaying the debt if you business fails to.
To apply, you have to provide a business tax ID, three months of credit card statements, one to three months of bank statements, a driver’s license number and a Social Security number.
If you need to borrow less than $100, 000 and have good credit: Lending Club
- No collateral required on loans under $100, 000
- 8% to 32% APR
Lending Club offers term loans and lines of credit up to $300, 000, but collateral is required if you borrow more than $100, 000 on either product.
The lender’s APR ranges from 8% to 32%, making its loans slightly more expensive than SBA loans but competitive with online lenders such as OnDeck and Kabbage. There’s no prepayment penalty, so you can repay your loan early to save on interest.
Lending Club’s additional lending requirements:
- Three months of business bank account statements
- Past year of business tax returns
- IRS Form 4506-T
Lending Club does not offer small-business loans to borrowers in Idaho and Iowa.
If you have unpaid invoices: Fundbox
- Cash advance payment based on the value of your invoices
- 44% to 64% APR
Fundbox provides an unsecured cash advance (no collateral or personal guarantee required) that’s up to 100% of the value of your unpaid invoices. After receiving the cash advance, you’ll repay it in 12 equal weekly installments, plus a fee. If your customer ends up paying you before then, you can repay the advance in full to save on fees, with no penalties.
Here are Fundbox’s requirements::
- Unpaid invoices
- At least six months of activity in an online accounting or bookkeeping software application, such as Xero or Quickbooks
If you own a startup and have strong personal credit: Prosper
- Borrow up to $35, 000, repaid over three to five years
- 6% to 36% APR
With Prosper, you can borrow up to $35, 000 in the form of a personal loan and use it for your business. No business history or collateral is required, but you’ll need solid credit to qualify.
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