The best rates and repayment terms on unsecured business loans, those that don’t require collateral, are invariably going to be found through your local bank or credit union. Traditional lenders like these tie their rates to the federal funds rate (the lowest rate banks are allowed to lend to one another), so if you have excellent credit and an established business history, you legally can’t do any better than the terms you’ll find at your bank.
That being said, it’s notably difficult to get an unsecured business loan through traditional lenders; especially if your business is relatively young and hasn’t had enough time to establish good credit. It can also take months to apply and get approved. That’s why I researched the most popular platform lenders (a.k.a. “online lenders”) in the U.S., including peer-to-peer and direct lenders.
The Best Unsecured Business Loans of 2020
No matter what your business is, or where your credit currently stands, one of the platform lenders listed below will be able to offer you the most competitive rates and repayment terms available (outside of your bank), through a fast and easy online application process.
Best for Businesses With Credit Scores Over 600
Funding Circle is a peer-to-peer lender that offers payment terms ranging from one to five years. To qualify, your business must have at least $150,000 in annual revenue and have been in business for at least two years (with at least one year of profitability). Its application process includes sharing your tax returns (business and personal), and business bank statements, with more documentation required for loans larger than $300,000. Fees include an origination fee (0.99%-5.99% of the loan amount) and a late fee (for late payments) of 10% of the total missed payment amount.
Who it’s good for: Companies with at least two years of business history and annual revenues over $150,000.
Who should pass: Companies with less than two years of business history, or those with annual revenues of less than $150,000. Funding Circle is also currently unavailable to residents of Nevada.
Prosper is a peer-to-peer lender, but does not offer loans specifically for businesses. Owners can take out an unsecured personal loan and use it for business purposes, however. This is a good option if you only need a small amount of money (up to $35,000) and if your business is still so new that you don’t yet have enough business credit history to qualify for a small business loan. Prosper’s loans come with terms ranging from three to five years. The turnaround time is a bit slower than other lenders; it can take up to two weeks to be funded.
Who it’s good for: New companies with less than a year in business and those looking to borrow less than $35,000.
Who should pass: Business owners who need fast cash (the two-week wait might be a dealbreaker), as well as older business that already have an established credit history of their own.
Streetshares is a peer-to-peer lender that issues unsecured business loans to companies that have been in business at least a year and that have annual revenues of at least $25,000. You can also qualify as a younger company (six months in business), as long as you have $100,000 in annual revenue. Repayment terms range from three months to three years. Borrowers cannot have had any bankruptcies within the past three years, and cannot have any current tax liens or collections (unless you can provide documentation to explain the situation). Once approved, you can expect to receive your loan funds in one to five days.
Who it’s good for: Companies that have been in business for over a year, credit scores over 600, and more than $25,000 in annual revenue.
Who should pass: Businesses that need to borrow amounts greater than $100,000. StreetShares is also currently not available for business owners in North Dakota and South Dakota.
Dealstruck is a direct lender that offers unsecured business loans with repayment terms up to four years. Dealstruck requires borrowers to have been in business for at least one year and at least $150,000 in annual revenue. Its website has a convenient tool that most other lenders’ sites don’t have, too, where you can calculate your estimated monthly payment based on your loan amount, credit score, and terms, too. Loans are funded in five to seven days.
Who it’s good for: Companies that have been in business for at least one year and generate over $150,000 in annual revenue.
Who should pass: Companies that have been in business for less than a year, as well as those with poor credit.
OnDeck is a direct lender that offers two options for unsecured business loans, called Term Loan and Line of Credit. Line of Credit loans are for more established businesses, with APRs ranging from 13.99% – 39.99%. OnDeck’s Term loans are for newer businesses that want smaller loan amounts, and this type of loan does not have “interest rates;” instead, OnDeck makes money on these loans by charging a fixed amount for every dollar borrowed. However, this can translate into the equivalent of quite a high APR. On the whole, OnDeck’s APRs range from approximately 30-50%, and the company requires a one-time origination fee of 2.5-4% ($2,500 on a $100,000 loan). Funds are dispersed quickly – usually within a few days, but sometimes as fast as 24 hours.
Payment terms range from three months to three years, but you are required to repay your loan with automatic weekly or daily repayments, and there is no real advantage to paying off your OnDeck loan early because the lender requires borrowers to pay a fixed amount of fees. OnDeck requires you to have been in business for at least 1 year, have a minimum credit score of 600, and at least $100,000 in annual revenues.
Who it’s good for: Companies with credit scores of at least 600, and that are looking to borrow more than $100,000. If you have a better credit score, you should try Dealstruck first.
Who should pass: Companies with credit scores over 600 that can quality for lower APRs and better payment terms from other lenders, like Dealstruck.
Best for Businesses With Credit Scores Under 600
Kabbage is one of the most flexible platform lenders, offering funding to qualified borrowers who have less established credit, or don’t have enough business history to get a loan from other sources. Through its application is totally online, Kabbage reviews real-time business performance through factors like shipping data and online sales – not just a credit score. This often makes Kabbage a good choice for online retailers, Amazon sellers, and small companies that make a lot of sales online.
Kabbage borrowers need to have at least $50,000 in annual revenues and have been in business for at least one year. The small business loan from Kabbage works like a line of credit, where you get approved upfront for a certain amount, and then you can borrow money (up to that amount) up to once a day, and you’ll only pay for the funds you actually use. Kabbage funds must be repaid within terms of six months or 12 months.
Who it’s good for: Companies that have been in business at least a year, but that have limited credit history.
Who should pass: More established businesses with credit scores over 500 and businesses that need to borrow more than $150,000.
DISCLOSURE – In addition to writing for The Simple Dollar, I work as a freelance blog writer for Kabbage, but they did not pay me to write this article and they were not involved in its creation. I have personally interviewed many small business owners who are customers of Kabbage, and I know that Kabbage’s product can be a great solution for business owners who need fast, convenient access to working capital.
The Best Unsecured Business Loans: Summed Up
|Lender||Loan Amounts||Credit Requirements||Annual Percentage Rate (APR)||Repayment Terms|
|OnDeck||$5,000 to $500,000||Minimum credit score of 600+
At least 1 year in business and $100,000 in annual revenue
|Line of Credit: 13.99% – 39.99%, Term Loan: approximately 30-50%,
One-time origination fee of 2.5-4%
|3 months to 3 years|
|Kabbage||$2,000 to $150,000||Minimum credit score varies
At least 1 year in business and $50,000 in annual revenue
|32–108%||6 months or 1 year|
|Prosper||Up to $35,000||Minimum credit score of 640
No business longevity or income limits
|5.99–32.99%||3 to 5 years|
|Funding Circle||$25,000 to $500,000||No minimum credit score
At least 2 years in business and $150,000 in annual revenues, with 1 year of profitability
Origination fee ranging from 0.99-5.99%
|1 to 5 years|
|Streetshares||$2,000 to $100,000||Minimum credit score of 600+
At least 1 year in business and $25,000 of annual revenue, or six months in business and $100,000 in annual revenue
|9–40%||3 months to 3 years|
|Dealstruck||Up to $500,000||Minimum credit score of 600+
At least 1 year in business and$150,000 in annual revenue
|9.99–27.99%||1 to 4 years|
How I Found the Best Unsecured Business Loans
There are two types of platform lenders: Direct and peer-to-peer.
Peer-to-peer lenders use other investors to fund their loans. This means that the money for your business loan might be originating from dozens, or even hundreds of individual investors all over the world. They usually offer more flexible approval and repayment terms than either bank or direct online lenders, but their interest rates are generally a bit higher on account of it.
Direct lenders issue loans from their own company’s capital, just like a bank, but without some of the traditional requirements and limitations of bank lending. As a result, direct lenders are often able to issue loans more quickly than a bank or even peer-to-peer lenders, and can offer some of the best rates available outside of traditional lenders.
Here are the factors I looked at when researching each of the country’s top platform lenders in order to find the best:
- Range of loan amounts: Whether you need a smaller loan of $10,000 or less, or a six-figure loan, you can find what you need on this list of lenders.
- Competitive rates: Platform lenders typically cannot offer as low of rates as a bank, but depending on your credit and repayment terms, many of these lenders offer competitive APRs.
- Flexible terms: These lenders tend to have good options for repayment terms, so you can make your loan repayments fit into your monthly budget.
- Fast release of funds: If you need fast cash, some of these lenders can release funds to you in as little as one or two days.
- Overall reputation: All of these lenders have a solid track record of positive reviews from customers, financial strength, and a favorable reputation within the financial services industry.
- Simple application process: If you need cash quickly and don’t have time for many pages of bank paperwork, these lenders can help. Their loan applications can be completed online in a matter of minutes.
- Helpful websites: All of these lenders have easy-to-use, well-designed websites that are full of detailed, helpful information, so you can understand your options and make a good choice.
Why Get an Unsecured Business Loan?
The short answer: flexibility. If you need to borrow money for your business fast, an unsecured business loan is unquestionably going to be your best option. They’re typically more readily available and faster to close than a secured loan, but the downside is going to be a higher interest rate.
To understand why, it’s important to understand the difference between a secured and an unsecured loan. Secured loans, like car loans or mortgages, are “secured” by collateral – some kind of asset of yours that you promise to give to the bank in case your loan cannot be paid. Secured loans typically offer a lower interest rates than unsecured loans because of this, but require more time to obtain since research needs to be done on the collateral asset’s value.
Unsecured loans don’t require you to put up any collateral against the loan. You don’t have to risk losing your house, your vehicle, or other property in case you are unable to repay the loan, and the lender doesn’t need to research anything besides your credit rating and annual revenue. Unsecured business loans tend to have higher interest rates than secured loans, because the bank is taking a bigger risk by loaning you the money without collateral.
If you can get a lower interest rate on a secured loan, then you should take it. But if you need cash fast, unsecured loans can usually be attained faster.
Jenn Mathis, co-founder and Vice President of One Degree Capital, says that unsecured business loans have several advantages compared to secured business loans. As she explains: “Businesses without adequate collateral, or who do not want to tie up their assets, or who just have a short term need for cash – to purchase inventory, for example – typically seek an unsecured loan.”
However, don’t assume that just because a loan is unsecured means you are free from the consequences of failing to repay. If you default on an unsecured loan, in most cases, lenders can still pursue and seize your business assets. As Candice Caruso, president of Pango Financial, explains: “Business owners who are looking at unsecured business loans will still need to meet income and credit requirements, which tend to be higher than that of secured business loans. Another advantage of an unsecured business loan is if your business defaults on the loan, the lender cannot seize any of your business’ property unless it’s court ordered. But on the flip side of that, if the lender does obtain a court order, they can essentially pursue any of your business assets, while a lender for a secured loan can only seize the collateral items. Similarly, if your business files for bankruptcy, the court may discharge those unsecured loans, but typically won’t do so with secured business loans. But, be cautious, because an unsecured loan will still require a personal guarantee that could end up costing you in the end.”
Meredith Wood, Head of Content at Fundera, says that whether you get an unsecured or secured loan, it’s important to look at the overall costs and ask yourself why you want to borrow the money, and how it can help your business. As she explains: “Honestly, business owners should go with the best rate. If you can get a lower interest rate on a secured loan, then you should take it. But if you need cash fast, unsecured loans can usually be attained faster. If you have a time-sensitive need, start your search with unsecured loans. It’s not always a better to deal to get a secured business loan instead of an unsecured business loan. It really does vary lender by lender. Most unsecured loans will come with a personal guarantee or a blanket UCC lien anyways, so both types of lenders are managing their risk, it’s just that secured loans have a more specific relationship between the debt and the asset. Ask yourself if you really need a loan or a line of credit. Lots of business owners want a line of credit, but it doesn’t make sense for all financing purposes. If you have a specific purchase in mind, go for a term loan. They tend to be easier to qualify for and there are more options for unsecured business loans.”
The Bottom Line
Getting an unsecured business loan is an important tool many business owners use to buy inventory, equipment, and make long-term investments in the growth of their companies. Start with your bank first, but if you can’t get approved for a bank loan, or if you need fast cash, there are a variety of platform lenders offering flexible financial solutions and competitive rates. Depending on your business needs and financial status, one of the lenders outlined in this article will be able to offer you a good deal that fits your goals.