Unsecured Business Funding: At a Glance
Looking for capital? An unsecured business loan may be just what you need.
When it comes to acquiring a business loan from a traditional bank, many business owners find themselves in a sticky situation due to:
- Heavy approval requirements, and
- Long time frames to obtain that funding
Unsecured business funding was created to help overcome these common issues with traditional business loans and make quick, small business funding possible.
Read on to learn more about your unsecured business loan options as well as everything there is to know about how they work, how to qualify, and which options are best for you.
Apply for an unsecured business loan from Excel Capital
With no personal guarantees or collateral required as well as funding (and approval) in as little as 24 hours, an unsecured small business loan with Excel Capital can give your business the funds it needs to move forward.
Complete our online application and see how much you can be approved for:
Types of Unsecured Business Loans: 5 Options
When it comes to unsecured business funding, you have four major options.
Excel offers competitive rates and lightning fast approval times on each unsecured option, offering both flexibility and convenience.
Here are the four main unsecured business funding options:
1. Split Funding (AKA Merchant Cash Advance)
Complete our short application to apply for a merchant cash advance:
In split funding, or a merchant cash advance, the lender applies a split to your receivables until the funding is paid in full.
The specifics of the split or percentage held back of your Visa, Master Card, or other credit card processor volume is based on the contract that is agreed upon prior to getting funded.
That agreement is generally underwritten based on your credit card processing volume coupled with your gross monthly revenue deposited into your business bank account.
All merchant cash advances utilize your future credit card sales to calculate the repayment pace of the advance and there are 3 ways to provide this type of unsecured business funding.
Click below to learn about each type of merchant cash advance:
1. Merchant Cash Advance: A Direct Split with Your Credit Card Process Provider
This is the most seamless type of merchant cash advance.
In a merchant cash advance, you utilize one of our friendly credit card processors to divert the agreed-upon percentage to us and applied to the outstanding balance whilst you receive the remainder of the credit card processing sales directly in your existing bank account like you normally did before receiving the business funding.
This split happens every time you batch out your terminal and you receive no delay in deposits and you repay at the pace of your business. This requires your process allow us to place as split on your credit cards sales.
The beauty of a direct split is that it gives a funding option to business owners who have a high amount of NSF’s (non-sufficient funds) or overdrafts or have a very volatile sales cycle.
2. Lockbox Funding: A Separate Account with Automatic ACH
This method is utilized when a business does not use one of our friendly credit processors and does not want to switch their existing merchant processing provider to facilitate the funding.
A lockbox is good because many merchant processors have early termination fee’s and this avoids paying them to get split funding. How a lockbox works is a bit more complex than a direct split on your credit card processor. We set up a lockbox account also known as a bridge account or you. This bridge account is an actual bank account where you receive online login credentials and a bank letter.
This account is solely used for splitting your credit batches between the funding institution and your business account. Once a batch is received into that account it is designed to automatically ACH the specified percentage to the corresponding accounts.
Due to the process associated with this type of funding, there is typically a 24–48-hour delay in the time it takes the money from your batch to hit your business bank account.
In order to set up a lockbox you need to follow these 3 steps:
- Sign the lockbox form provided on the funding agreement authorizing the lockbox account
- Receive the bank letter created upon receipt of the lockbox form.
- Call your credit card provider and tell them you want to switch where your credit card processing activity is being deposited.
Usually, they can do this over the phone, online or will ask you to complete and sign a bank change form and have it return to them via email or fax which will require you to attach the copy of the bank letter to the executed bank change form.
This can take up to 48 hours depending on your credit card processor.
3. Variable ACH: A Manual Repayment Method
This method is used to collect payments when a business owner does not work with a “friendly” merchant processor and does not want to incur the 24–48-hour delay in deposits. The way this works is pretty straightforward.
Our collections department logs into your merchant processing portal on a daily basis to see what the last batch was and then collects the specified percentage via ACH from the business bank account. This type of split funding requires access to your merchant processing online account at all times or else it would constitute a default.
When a deal is in underwriting it will be determined if this option is available based on a formula that is heavily weighted on the average ledger balance in the bank account. Unlike direct split, if a business has many overdrafts in the account they will be declined for a variable ACH but can still get approved for a direct split or lockbox method.
What’s Needed to Qualify for Split Funding?
- You must accept credit cards with a minimum of $5,000 per month in credit card sales.
- You must be in business for at least 3 months
- You must be a US citizen or have Visa
What Paperwork is Needed to Qualify for Revenue Based Factoring?
- A signed and complete application
- Four months of recent business credit card processing statements
- Four months of recent bank statements
All varieties of split funding are derivatives of unsecured business loans since they are not technically loans and advances of future sales at a discount.
2. Revenue Based Factoring
Complete our short application to apply for an unsecured business loan:
This type of funding was created through the need for unsecured loans and other funding products for businesses that do not accept credit cards.
Prior to 2008, there was no solution to this problem and all unsecured products (other than split funding) were based on credit card sales. Due to the high funding demands for businesses that don’t accept credit cards, revenue-based factoring was created and ACH loans were born.
The way this type of funding is structured is more based on overall revenue or cash flow. According to the contracts most institutions purchase a set percentage of all your future sales which you as a business owner then sell at a discount.
This percentage of future sales is then estimated over the course of an anticipated term, generally three to 24 months. This future revenue is then collected in a variety of payment options generally on a daily, weekly, bi-weekly or even monthly repayments.
In most instances, it will be daily or weekly and for better-qualified clients, it will be bi-weekly or Monthly. Within the language of the contracts, you have the right to adjust the payments based on your revenue. So if you have a drop in revenue you are allowed to reduce the payment obligations.
This type of funding is usually approved in 24 hours and can fund same day if the stipulations (see the list of items that may be needed) are met. According to the contract, it follows the same rule of thumb as split funding or a merchant cash advance.
A lien may be placed against your future receivables but most institutions do not require any personal guarantee or collateral and are considered unsecured business loans.
Revenue-based factoring will usually subordinate behind any other pre-existing funding you may have and will usually be the last creditor to collect in the case of a bankruptcy or liquidation.
What’s Needed to Qualify for Revenue Based Factoring?
- You must accept credit cards with a minimum of $5,000 per month in credit card sales.
- You must be in business for at least 3 months
- You must be a US citizen or have Visa
- A signed and complete application
- Four months of recent business credit card processing statements
- Four months of recent bank statements
What Paperwork is Needed to Qualify for Revenue Based Factoring?
- A signed and complete application
- Four months of recent business credit card processing statements
- Four months of recent bank statements
- Financial statements may be required from time to time.
3. Unsecured Business Line of Credit
Complete our short application to apply for an unsecured business line of credit:
An unsecured business line of credit revolves based on your outstanding invoices and receivables.
Unsecured business lines of credit are not technically unsecured business loans but a line of credit which were designed knowing that many merchants want to have the ability to prepay and draw down on capital as they desire instead of being obliged to take a full funding amount and have to repay it based on the receivables.
The way these products work is, they take into consideration what invoices and receivables a business has outstanding along with the cash flow and revenue to determine a sustainable business line of credit.
The process is relatively straightforward with approvals being issued in about 48 hours. In order to see if your company is eligible for an unsecured line of credit, you have to submit the same application and bank statements as listed with spilt funding and revenue base factoring, but you also must meet the criteria below.
What’s Needed To Qualify for Unsecured Lines of Credit?
- You must have a business bank account
- You must be a US citizen
- Generally, you must maintain an average ledger balance of $1,000 in your business bank account
- 50k + in Yearly Revenue
- 1+ years in business
- Can not be a non profit
- 540+ FICO
- Can not have more than 3 Negative days a month in your bank account
What Paperwork is Needed to Qualify for Revenue Based Factoring?
- A signed and complete application
- Six months of recent business credit card processing statements (if you accept them at your business)
- Six months of recent bank statements
- Financial statements may be required from time to time.
4. Short Term Loans
Complete our short application to apply for a short-term loan:
These types of unsecured small business loans are created to help business owners fill immediate, short-term needs or cash flow issues. This type of funding is structured as a loan with predetermined payment schedules and amounts. With this type of funding its very important to review the contract as the language varies from institution to institution.
Many bigger lenders may require a personal guarantee that can include assets. While some other lenders may include a limited personal guarantee that allows the lending institution to go after personal assets in cases where fraud is committed.
In many cases, it is very hard to prove fraud but in a business where the service is money the lenders use this language as a way to protect themselves against potential fraud.
What’s Needed to Qualify for a Short Term Business Loan?
- Completed Application
- 4 months of most recent bank statements
- 4 months of most recent processing statements
- Minimum of 2 months in business
- Minimum of $7,500 in monthly revenue
- Funding over $75,000 may require additional documentation
What Paperwork is Needed to Qualify for a Short Term Business Loan?
- Most recent business tax return
- P&L
- Balance Sheet
This type of loan doesn’t require a lot of paperwork, funds quickly, and can be used for almost any business purpose. Short-term loans are perfect for purchasing inventory, filling gaps between accounts payable and receivable, as well as any emergency repair or maintenance expenses that may pop up. These loan products generally have repayment terms of 3 to 24 months.
As the alternative lending space is developing and expanding new unsecured business loans are constantly being created. This does not encompass all unsecured business finance products but covers a majority of what we see being utilized by small business owners as well as Excel Capital’s most popular unsecured business funding options.
Why Unsecured Business Funding?
Most banks will only approve you for a loan if your business is at least two years old, the loan is secured with collateral, and you can show positive cash flow and profit on your tax return.
The problem? Most business owners (over 70% in our experience) under 2 years in business show a loss due to startup costs and investments.
Not to mention, your business needs to have great to excellent credit.
This can be problematic for new businesses who have yet to establish themselves (and even seasoned business owners during difficult times).
Many business owners have one or more of the below issues:
- They haven’t been in business long enough
- No collateral to offer
- Low credit scores
So, what do you do? That’s where unsecured business loans can be invaluable.
How Do Unsecured Business Loans Work?
Unsecured business loan amounts typically range anywhere from $10,000 to $2,000,000 depending on the cash flow of the business being underwritten.
They don’t require you to put down any form of collateral. Hence, making them unsecured for the lender. However, you still need to meet certain basic requirements.
The amount of the loan is dependent upon your:
- Business’ credit score
- Average monthly bank balance, and
- Annual revenue
Unsecured business loans will typically range between 75% to 150% of your last 3 months average gross monthly sales. That means if you deposited $100,000.00 on average for the past 3 months, your business can qualify for $75,000.00 to $150,000.00. Terms typically range between 6 and 18 months.
Keep in mind that if a cash amount is not approved, you as a business owner may instead be offered a line of (unsecured) credit.
In addition, while secured business loans require collateral, such as your house, car, 401k, inventory or account receivables, unsecured loans only require you to pledge limited collateral such as your future sales that only apply to your business.
In fact, funding contracts explicitly state that if you stop having receivables and you go out of business, you’re not entitled to pay back the business loan.
This is one of the primary benefits of an unsecured small business loan. If your business hits a rough patch and you has trouble making payments, or default on the loan, there’s no collateral to lose.
In fact, we’ve found this process to be largely ineffective for ourselves as a lender as well.
It’s our goal to work with you, not against you. So, if you do struggle to make loan payments, we’ll help find you a solution to correct the problem, improve your working capital, and get current once again.
Unsecured Business Loans: Pros and Cons
So far, we’ve touched on some of the benefits of unsecured business loans. Now, let’s cover both the pros and cons of this powerful financing vehicle.
There is no perfect type of loan for all businesses, and as we discussed earlier there are several different types of unsecured business loans. However, there are some overarching qualities to all unsecured business loans, pros and cons, that you should be aware of.
Here are the pros and cons of unsecured business loans.
Pro: Funding is fast and simple
The approval process for traditional bank loans is notoriously long and difficult. When all is said and done, it can take well over a month from start of application to finally get an approval, and longer still to get funded.
With unsecured business loans, the process is quite the opposite. Assuming your documents are all in order, you can not only be approved within 24 hours, you can also receive the funds in your bank account within another 24 hours.
That’s a total of 48 hours, lightning-fast compared to the traditional bank lending process.
Pro: Loan amounts are large
Secured business loans amounts are typically tied to the collateral you use to secure the loan. That means you’ll rarely receive a loan for greater than the value of the asset.
With unsecured business loans, that’s not necessarily the case. You can be approved for much more than you would have been approved for with a traditional bank loan in some cases.
Pro: No hard collateral
One of the greatest benefits of unsecured business loans is the fact that they don’t require the kind of hard collateral that traditional bank loans require.
It’s important to keep in mind that a kind of soft collateral may still be required, typically in the form of a promise of future business earnings in the case that you default on your loan.
However, you’re not required to pay this back in the case that you go out of business, so it doesn’t function the same way that hard asset-based collateral does.
Con: Higher interest rates
There are several pros to unsecured business loans, and they can be used for virtually any business purpose. However, like all business funding vehicles, they have their downsides as well.
With unsecured business loans, that really comes down to their higher interest rates.
Lenders need some sort of way to ensure they can get their loan back. To that end, they use things like collateral, personal guarantees, and interest.
Because unsecured business loans don’t have collateral, lenders need another way to make sure they can at least make their loan amount back.
Unsecured Business Loan Rates and Payment Terms
Unsecured business loans rates are distinctly different when compared to traditional bank loans.
Clearly, the lack of a personal guarantee or collateral is a huge upside, however, as you might imagine, this upside comes with some downsides.
The unsecured business loan rates and terms can be up to 18 months with payments being due either monthly, weekly, or daily depending on the loan terms.
In addition, unsecured business loan rates vary depending on risk. They can be as low as 14% on unsecured business loans but they can also go much higher as well. A big upside to this, however, is that we can get you approved even if you have a bad credit score and have delinquent or even maxed out tradelines.
How to Qualify for an Unsecured Business Loan
Requiring both 2 years of business history and a stellar credit rating, traditional bank loans are out of reach for many business owners.
However, if you find yourself in that boat, an unsecured business loan may just be the perfect solution to your funding needs.
According to the Mission Asset Fund, business loans are declined most often due to “having no credit history or a low credit score.”
Despite this, banks still prioritize credit scores and use an outdated credit-first model for approving (or denying) you for a business loan of any kind.
Rather than dwelling on factors that truthfully have little to do with the state of your business now, we like to focus on the present by looking at the business’ current conditions.
With Excel Capital, there’s no minimum credit score required to qualify for one of our unsecured loans.
When determining if your business is right for an unsecured business loan, our underwriters analyze a variety of metrics such as big data, historical risk models, and trade line distribution to determine its unique growth potential instead of just looking at your credit score.
Having said that, before we can qualify you for a loan, there are 2 qualifications that you must meet:
- Records showing at least $10,000 of monthly gross revenue
- Proof that you’ve been in business for at least six months
Get an Unsecured Business Loan from Excel Capital
A whopping 82 percent of small businesses fail from running out of cash. Is your business in danger of running out of cash flow?
Until recently with the introduction of unsecured business finance, obtaining unsecured business loans was a long, cumbersome process that required trails of paperwork and inconvenienced your day-to-day business operations.
So, we decided to fix that by creating an expedited process to allow small business owners to get through the application process as quickly as possible so you can get back to focusing on what matters– your business.
With Excel Capital, getting the cash your business needs to maintain growth– or simply get through a rough season– has never been easier.
You’ll get an approval decision from us in less than 24 hours and, pending approval, funds will be deposited within your account in as early as 24 hours as well.
Imagine what a surge of cash could do for your business, from providing the funds you need to purchase much-needed equipment to paying off past-due vendors, and virtually anything else in between.
Complete our online application and see how much you can be approved for:
Frequently Asked Questions (FAQ)
What can you use an unsecured business loan for?
An unsecured business loan can be used for a variety of purposes, from paying for payroll, emergency expenses, supplies to prep for a seasonal surge, and more.
Do banks provide unsecured business loans?
Banks don’t typically provide unsecured business funding of any kind. To obtain a loan from a bank, you’ll generally need a credit score of 680+ as well as something to guarantee or “secure” the loan via collateral such as a business vehicle or cash reserve.
What happens if you default on an unsecured business loan?
If you default on your loan, a late payment fee may be charged and your interest rate may increase, depending on your agreement.
However, with no hard collateral requirements, your property and other hard assets such as vehicles or cash savings can’t be taken. That’s one of the major benefits of an unsecured business loan.
Alternatively, with a traditional bank loan, collateral such as business property is required to secure the loan. That means if you default on your loan the property can be seized to collect on the defaulted debt.
What is the interest rate on an unsecured business loan?
With no collateral requirements on unsecured business loans, interest rates tend to be higher compared to traditional bank loans.
Unsecured business loans can go as low as 14% but can be higher, all depending the level of risk factors involved, with terms up to 18 months.
Can I get a business loan without a personal guarantee?
Yes, you can obtain an unsecured business loan without a personal guarantee. It all depends on your agreement. Depending on your terms, a personal guarantee may or may not be required.
Can I qualify for a business loan?
Anyone can be approved for an unsecured business loan provided their business is in good standing and they meet the basic credit requirements (500+ score).
With Excel, you can be approved for an unsecured business loan even with bad credit, as we take a more balanced approach to determining your eligibility for funding by reviewing your entire business’ health.
What credit score is needed for an unsecured business loan?
Traditional bank loans require very high credit requirements (680+) and have a long and tiresome approval process.
However, just a 500 minimum credit score is required for our unsecured business loans, making them far easier to be approved for than a traditional loan.