How to Get an Unsecured Business Loan for Startups in 4 Steps

Cody Cromwell
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Learn How an Unsecured Startup Business Loan Works

What if you’re one of the many entrepreneurs who are willing to put in the hard work, but need a little help getting started? You’re looking to open a small business, but need some financial assistance, especially if you don’t have a lot of collateral.

Many business owners rely on personal loans to get their business off the ground, but these loans usually aren’t available for businesses that are just beginning or those that don’t have much collateral.

Alternatively, a startup business loan can be an ideal solution. This type of loan is designed to help entrepreneurs get their businesses up and running, and does so by helping them get started right out of the gate.

To qualify for a startup business loan, it’s important to have a business plan that shows how you’ve set out to achieve financial success in the immediate future. Also, it’s helpful to have other plans in place that will help you get even more funding in the future.

Once you’ve created a detailed business plan and financed your startup with a startup business loan, you can go back and work on financing that plan for more funding. This type of loan also offers greater credit protection than a personal loan.

Evaluate Your Unsecured Startup Business Loan Options

Startup loans vary from one another in terms of interest rates and repayment periods. If you’re still uncomfortable with the overall amount of the loan, you can use a calculator to estimate the amount of time it will take to pay it off. Advance funding options also come with varying degrees of security, from personal guarantees to first-of-a-kind asset protection lenders.

Personal Loans

Vs Business Loans: What is the Difference?

Whether you are looking to open a small business and need personal or business loans, you will want to make sure you are dealing with a reputable lender. Apart from safety concerns associated with choosing the right lender, there is also a difference in terms and conditions of personal loans and business loans.

Personal Loans

Personal loans are usually given out by banks, money lenders, finance companies, or online lenders, etc. The purpose is to get money for the personal expenses of the customer. The size of such loans varies from working capital or cash for business expenses in your home to unlimited loans for other personal needs like houses, investment, wedding, child education, vacations, business expansion, etc.

The loan amounts are distributed immediately, on receipt of a personal security deposit.

The approval required for personal loans is typically higher than for business loans. Usually, the size of the credit limit for personal loans is relatively low.

Business Loans

Business loans are provided for business expenses of entrepreneurs like us or our business partners, who are planning to start a new business. Not only are business loans required for legitimate business expenses, but they are also provided for purchase of equipment and for the salary or wages of employees.

Small Business Credit Cards

Credit cards help you build your credit record and establish a credit history. They can give you access to the money you need when cash flow is tight … and that’s important, especially if you’re a new business owner or just starting out.

The easiest credit card to get is the no annual fee business credit card.

Small business credit cards are ideal for new business owners, entrepreneurs, and freelancers who don’t want to carry a lot of debt. The first step in applying for a small business credit card is locating one that provides the benefits you need. Many of these cards have flexible spending accounts, foreign transaction protection, and travel and emergency assistance. Finally, among its other benefits, the card generally comes with fee-free cash advances and cash back rewards.

Step 1: Compare Business Credit Cards

The first step to finding a small business credit card is to compare the offers from all of your favorite cards to make sure you’re getting what you need. Find out which ones offer the most points, miles, and cash back.

You can compare all of your favorite business credit cards online to make sure you’re getting the best value out of your money.

SBA Loans for Startups

The SBA Loan program provides one of the Best and most Affordable sources for Funding your business. It's a good source for funding a start up firm and it has helped many entrepreneurs launch or grow their business.

ROBS

Co.in: How to Get an Unsecured Business Loan for Startups in 4 Steps

Secured loans are definitely easier to get (more attractive to banks) than unsecured loans. But that does not mean that unsecured loans are better than secured loans. When you secure your loan, you get a lower interest rate, locked in exchange for a specified amount of collateral. That being the case, an unsecured loan can actually be an ideal solution for your startup.

Many entrepreneurs have created successful startups even with no collateral. However, not having personal credit or assets to offer as collateral does come with a disadvantage. On the other hand, unsecured loans are a better solution to the problem.

To minimize the risk, your venture must ensure it has an ongoing cash flow to cover the loan payment.

Additionally, you can offer your personal assets as collateral and still get a more favorable interest rate.

Now that you know how to go about the process, let’s see how you can get the benefits of an unsecured loan.

Step 1: Sign Up on the Service

Step 2: Fill Out the Application and Upload the Documents

Follow these simple steps and ensure you give a good picture of yourself to get a loan. You can use this document to provide the necessary details.

Determine Your Eligibility

The first step in obtaining an unsecured business loan is to determine whether or not you are eligible. Start by checking with your bank for any limitations or minimum start-up requirements associated with small business loans. Before you reach out to a lender, also take a look at your co-signor’s credit data. If he’s not working, he likely won’t be approved for a business loan.

Be sure to save all of the necessary information and documentation, as a lender may ask you to supply these when you apply. You may need to provide a personal guarantee, business plan and, if operating a food truck, a food certificate.

If you’re unable to narrow down your options, a great way to get started is to follow some reputable financing blogs, or get in touch with your local chamber of commerce. Chamber of Commerce memberships are a good way to build your network and help your business grow.

Personal Credit Score

Depending on several factors, you may or may not be considered for a secured business loan. However, there are no such conditions imposed on unsecured business loans since they don’t include a lien on your assets.

Personal credit score is the most important and the most widely accepted factor that guides the loan approval decision. And with this you can structure your credit score to ensure that you will be considered for the unsecured business loan.

First, you need to determine what factors influence your personal credit score. Some of these factors include: age of the youngest person on your credit report, credit inquiries, late payments, recent bankruptcies, and payment history.

Next, you need to credit score simulation. To qualify for a business loan, you need to have a history of three consecutive personal credit scores above 800. The credit simulation works by creating a new credit report for you and using it to calculate a new credit score. Using the credit simulation, you need to get a credit score that is high enough to qualify for a business loan with a bank.1

The unsecured business loan is easy to get since you don’t need to show any collateral to the lender. Most banks will require you to have at least a few years business experience before taking the unsecured business loan.

Business Plan

A startup is a new business venture, or a startup is a new company … it is the point of origin for the start of a business. The starting point is right here.

Many people have a foolish desire for fame, fortune, and happiness and wish to have it appear, at their beck and call. But many are not one of these people because they have humility and realize that the goals of such a lofty path can only be attained after the ordeals and travails that come with the process of starting a business.

They know that it is such a venture that is often the wish of the foolish, both financially and financially. But without even trying, a unique idea can be created. It needs to be developed and refined in its forms, and if it is well-versed, the name of the business can be created. After that, it is time to tell others of the origins of this business.

Being financially well off is one of such ideas because it is one of incidents which keeps people in their minds. In the modern world today, there are many things that cause people to become happy, however, money is a.

Down Payment

Buying a house is a big financial commitment and as far as your financial situation goes, getting a small unsecured personal loan is often easier than saving for it and purchasing it outright.

While you can use the down payment from this loan to buy a condo, you can also use it to buy a piece of real estate with a small loan. And when you decide to sell or refinance, you will be able to do so with this money in hand.

However, if you’re looking to buy a house and you don’t have a down payment saved up, you can get one approved. For this, you will need a good credit score, high income and assets to fund the mortgage.

Apply for Your Unsecured Startup Business Loan

The application process for startup business loans is straightforward.

First, you should apply for an online business loan. The good news is that your potential lender has a good idea of what they’re getting into when they wrap their arms around your business loan application. The bad news is that before your application can be approved, you’ll have to submit a few pieces of information including a solid business plan, a pay slip, and a confirmation from a government agency or bank. And that’s not even the beginning of the loan application!

Once you’ve developed an online business loan application and submitted all the necessary documents, your lender will get back to you in about 10 business days. And if you’re approved, it will probably take around 7 to 14 days for you to receive your funds, if you’re approved!

Personal Loans

Vs Business Loans: What is the Difference?

Whether you are looking to open a small business and need personal or business loans, you will want to make sure you are dealing with a reputable lender. Apart from safety concerns associated with choosing the right lender, there is also a difference in terms and conditions of personal loans and business loans.

Personal Loans

Personal loans are usually given out by banks, money lenders, finance companies, or online lenders, etc. The purpose is to get money for the personal expenses of the customer. The size of such loans varies from working capital or cash for business expenses in your home to unlimited loans for other personal needs like houses, investment, wedding, child education, vacations, business expansion, etc.

The loan amounts are distributed immediately, on receipt of a personal security deposit.

The approval required for personal loans is typically higher than for business loans. Usually, the size of the credit limit for personal loans is relatively low.

Business Loans

Business loans are provided for business expenses of entrepreneurs like us or our business partners, who are planning to start a new business. Not only are business loans required for legitimate business expenses, but they are also provided for purchase of equipment and for the salary or wages of employees.

Business Credit Cards

Business credit cards are ideal for small businesses trying to make a name for themselves in their field and make their first steps toward long-term success. With a business credit card, you can charge what you need to on a per use basis, rather than every time you supply goods or services.

Taking these tips into consideration, here is our advice for people who want to acquire a business credit card for the first time:

Do not carry a balance on your business credit card

Avoid using your business credit cards for purchases that you don’t want to charge to your business. This can include personal expenses. Instead, use your business credit cards to purchase office supplies, as you would with a personal credit card.

Think twice before charging your business credit card for stop-gap financing – you’ll hurt your credit rating in the long run.

Expect Annual Fees and Late Fee Charges

A business credit card can be an excellent tool for your organization, but not if it comes with a hefty price tag. If your business can’t make it through the first year without having to make large payments, it’s likely your business credit card will fall under the umbrella of –costly credit” and you’ll be charged a high annual fee.

SBA Loans

Small Business Administration (SBA) loans are loans that are exclusively accessible to small businesses, which are defined as businesses that have a physical place of business, employ no more than 500 individuals, don’t receive outside investments, and whose carryon term (the period they intend to have their business) is less than 7 years.

So far, all of the loans we have discussed come in the form of equity financing. How is an equity financing loan conducted? First, the business owner can look for an investor, or the company itself can approach venture capitalists to acquire the capital.

If SBA loans are more appropriate, then you might also consider a 504 loan. 504 loans are also known as MTN loans. The MTN stands for Medium & Term loans. These are the process by which you could get a loan to operate your business.

Since, in a 504 loan, you are actually managing your funds (interest rates are lower than anywhere else), you have to make sure that you are careful about how the funds are managed.

Here are the steps, as laid down by the SBA, for obtaining a loan via the 504 loan program:

Step 1. Get a Signed Business Plan

ROBS

Co.in: How to Get an Unsecured Business Loan for Startups in 4 Steps

Secured loans are definitely easier to get (more attractive to banks) than unsecured loans. But that does not mean that unsecured loans are better than secured loans. When you secure your loan, you get a lower interest rate, locked in exchange for a specified amount of collateral. That being the case, an unsecured loan can actually be an ideal solution for your startup.

Many entrepreneurs have created successful startups even with no collateral. However, not having personal credit or assets to offer as collateral does come with a disadvantage. On the other hand, unsecured loans are a better solution to the problem.

To minimize the risk, your venture must ensure it has an ongoing cash flow to cover the loan payment.

Additionally, you can offer your personal assets as collateral and still get a more favorable interest rate.

Now that you know how to go about the process, let’s see how you can get the benefits of an unsecured loan.

Step 1: Sign Up on the Service

Step 2: Fill Out the Application and Upload the Documents

Follow these simple steps and ensure you give a good picture of yourself to get a loan. You can use this document to provide the necessary details.

Alternatives to an Unsecured Business Loan for Startups

Equipment Financing

There are many companies that offer small business loans and there are a number of great options to choose from. Those are secured loans by collateral or a guarantee of assets you have. They lend more money for beginners with very small capital.

Ask you bank or another provider what are their terms and conditions and what you need in order to advance you.

Contact companies like SunTrust, HSBC, Bank of America, Wells Fargo, Goldman Sachs, Citi Bank and their small business lending departments to talk about your business.

There are different platforms than The Lending Club, where you can make offers like credit cards or loans. The processors do the credit check. You can pay a loan in 12 to 30 months. The rates vary from 10% to 14%.

You can apply for a credit card. If you have not any funds you can use your credit cards loans or an existing loan to make a new form of loans.

Credit cards can be your first choice. You can check the current rates at the top-ranked credit card providers.

Point-of-Sale (POS) Financing

Small businesses are the backbone of the American economy. The fact that many of these businesses began as a hobby and evolved into a full fledged business is often difficult to capture on a business plan.

There’s a big reason for that: money! Money is tight in small businesses and owners are always going to be on a budget. Because of this, many owners are looking for creative ways to finance their business. One of the most necessary is taking out a loan from a small business lender.

One of the best places for entrepreneurs to find a small business lender is at their local incubator. These incubators typically take a chance on entrepreneurs, and they’ll often provide them with loans to help with their business. While you may be there for support, remember that the incubator is doing business too and they want a good return on their investment.

Take pride in what you do for your customer. Be a part of their customer experience. People want to feel that they’ve had a good experience with you every time they walk through your door. A professional, polished demo is the best way to do that.

Angel & Venture Capital

Most business loans and investments come from the traditional bank and institutional investors that want returns on their money, which means your loan or investment will be backed by a portion of your company’s equity. With that type of investment, you’ll have to pay back a set amount of money with full interest over a set amount of time.

Your debt to equity ratio will be listed on your loan agreement, and if your loan agreement includes a liquidation clause, the lender can require you to sell your company’s assets to pay back the loan or lose the asset.

If you’re looking for funding for a business and want to get in on the ground level of a budding startup company, you are most likely interested in venture capital.

Investors in venture capital are likely interested in a company’s ability to scale and not just its profitability. The returns will come from future profits and may be structured in such a way that you are required to give back significant equity of your company in the form of a non-dilutable preferred stock.

Many investors in venture capital will also take a look at a company’s management, including founding management and early employees. Some businesses used as examples include Amazon, Facebook, EBay, and Microsoft.

Bottom Line

  • It is always advisable to get a secured business loan. A secured cheap is the most reliable, and you will have a loan coverage from the bank if for some reason you cannot pay back the loan.
  • If you want to get an unsecured business loan, fulfillment of the following criteria will be required too. Since it is unsecured loan and repayment liability will be on you fro only, there are added risk factors as well:
  • The business needs to have a solid and ongoing cash flow, and there has to be some form of collateral for the loan amount
  • The business should have a comparable historical financial data with all numbers easily available
  • The business probably cannot be conducting any sale in the near future