Many types of funding institutions offer unsecured (non-asset-based) loans and business lines of credit. The qualification criteria can vary widely from bank to bank and also differ by state. In addition, certain industries may be restricted or completely prohibited from obtaining unsecured financing.
These restrictions often change as market conditions shift and the economy moves through different phases. If you are not familiar with which lenders offer unsecured funding, how much they lend, or what qualifications they require, navigating business financing can become very challenging. Many financial institutions, including traditional banks, are generally hesitant to issue unsecured signature loans.
Another important factor to consider is your credit score. Each time your credit is pulled, your score can drop by approximately 3–5 points. Applying for loans without understanding lender requirements or underwriting guidelines can negatively impact your credit, leaving you frustrated and back where you started.
Tips for Getting Unsecured Loans
One of the most important steps before applying for any business financing is knowing your personal credit score. Personal credit is typically used to qualify for unsecured business loans and unsecured personal loans because lenders do not require assets or collateral to secure the funding. Since there is no collateral involved, lenders rely heavily on your credit history and overall creditworthiness.
Unsecured credit cards can also be used to help finance a business, but they should be used with caution. Always review the APR (Annual Percentage Rate) carefully to understand any hidden fees and the true cost of this type of small business financing.
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