Unsecured Business Loans (2024)

FAQs

How hard is it to get an unsecured business loan? ›

Although it can be difficult, it is possible to find long-term unsecured business loans. Long-term options typically range up to 25 years. If you're looking for a long-term unsecured loan for your business, you'll need to have a proven track record of business history, strong revenue, and good credit.

Unsecured loans are riskier than secured loans for lenders, so they require higher credit scores for approval. Credit cards, student loans, and personal loans are examples of unsecured loans.

If you don't pay an unsecured business loan, you risk damaging your credit score and reputation among lenders. Lenders can also impose late fees and penalties, adding to the amount owed. Ultimately, failing to pay the debt can lead to creditors taking legal action against you or your business.

To land one, you'll need to present a credit score in the upper-good range — 700 or more — accompanied by a history of being punctual about paying debts. Similar to a personal loan or a credit card, an unsecured personal line of credit gets bank approval based on an applicant's ability to repay the debt.

If you have good credit and can meet the lender's eligibility guidelines, getting a business loan with an LLC can often be easy. But new businesses and businesses with limited revenue may have difficulty getting approved, especially with traditional banks and credit unions.

How much of a business loan you can get depends on your business's annual gross sales, creditworthiness, current debts, the type of financing, and the chosen lender. In general, lenders will only provide loans up to 10% to 30% of your annual revenue to ensure you have the means for repayment.

In general, lenders extend $30,000 loans to borrowers with good to excellent credit, which is typically 670 and higher. But there may be lenders who lend to borrowers with bad credit.

Requirements for a $5,000 loan vary by lender. But in general, you should have at least Fair credit, which is a score of 580 or above. Lenders may also look at other factors, such as your income and your debt-to-income ratio (DTI), during the application process.

The easiest types of loans to get approved for don't require a credit check and include payday loans, car title loans and pawnshop loans — but they're also highly predatory due to outrageously high interest rates and fees.

If you fail to pay a business loan, a lender will typically try to work with you, setting up a plan to pay off the loan. If this doesn't work, you'll go into default. If you signed a personal guarantee or provide collateral, your lender has the right to seize assets. Your credit score will also drop.

Why do business loans get denied? ›

Common reasons for loan rejection are not having a long track record in business, deteriorating business conditions in the industry where you operate and poor cash flow. If the lender is concerned about something you can control, correcting the situation and then reapplying may be the best course of action.

Loan guarantees: If you personally guarantee a loan to the LLC, creditors can pursue your personal assets if the loan defaults. Pledging personal assets as collateral: If you pledge your personal assets as collateral against a business loan, a creditor could seize your property in the event of a default.

Getting Financing for Your LLC

One of the biggest benefits of establishing credit for your LLC is the ability to get access to more financing options. Some lenders simply won't lend to sole proprietorships; your business must be its own legal entity.

Ask Someone To Co-Sign

Getting a personal loan with a co-signer that has a strong credit score and a solid income can boost your application. Your co-signer – ideally, a family member or close friend – will apply alongside you, and you'll both be responsible for repayment of the loan.

To be eligible for a personal loan, you should have a credit score equal to or above 750, which most lenders prefer. However, if you have a lower credit score, you may also apply for a personal loan, but you may have to pay a higher interest rate.

To qualify, you'll need to meet the minimum qualifications for your personal credit score, time in business and annual revenue. Some lenders offer more flexible repayment terms than others, such as long-term loans. Others require short terms like 24 months or less.

Payment history is weighed the most heavily in determining your credit score, along with your total outstanding debt. Generally, borrowers need a credit score of at least 610 to 640 to even qualify for a personal loan. To qualify for a lender's lowest interest rate, borrowers typically need a score of at least 800.