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
Excel Capital provides business funding directly and arranges funding through partners. Approval, funding speed, personal guarantees and any collateral requirements depend on the product, provider and written agreement.
Complete our online application and see how much you can be approved for:
Four Business Financing Options: Loans and Receivables-Based Funding
The four options below include loans, a line of credit and receivables-based funding. They have different costs, obligations and legal structures; they are not all unsecured loans.
Available products and terms vary by transaction. Your written offer should identify the funding provider, product type, total cost and repayment or remittance obligations.
Compare these four business financing options:
1. Split Funding (AKA Merchant Cash Advance)
Complete our short application to apply for a merchant cash advance:
In split funding, often used with a merchant cash advance, the provider receives an agreed percentage of business receipts under the funding agreement. A purchase of future receivables differs from a loan.
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.
The methods below describe ways to collect an agreed share of receipts. The collection method and any reconciliation process depend on the particular agreement.
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.
With an agreed card-sales split, the processor sends the contracted percentage to the funding provider and the remainder to the business. Processing and deposit timing depend on the processor and agreement.
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.
With a variable ACH arrangement, the provider may review processing records and collect an agreed percentage from the business bank account. Reporting access, collection permissions and default provisions must be set out in the agreement.
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
Split funding describes a collection method. A merchant cash advance structured as a purchase of future receivables is different from an unsecured loan; review the agreement to understand what is being offered.
2. Revenue Based Factoring
Complete our short application to explore revenue-based funding options:
This type of funding was created through the need for unsecured loans and other funding products for businesses that do not accept credit cards.
Funding collected by ACH may be structured as a loan or a purchase of future receipts. ACH describes a payment method, not the legal type of financing.
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.
The agreement sets out the purchased receivables, the amount to be remitted and the collection schedule. These terms differ from the principal, interest and repayment term of a conventional loan.
Some receivables-purchase agreements provide a reconciliation process to adjust collections to actual receipts. Any adjustment depends on the agreement and its procedures; do not assume payments decrease automatically.
Approval and funding times depend on underwriting, complete documentation and bank processing. Review the specific agreement, including any reconciliation provisions, before accepting funding.
A receivables-based agreement may include a security interest, lien or guarantee. A lien on receivables is a form of security, so these arrangements should not automatically be described as unsecured loans.
Lien priority and any subordination depend on the agreements, filings and applicable law. Do not assume a receivables-based provider will be the last creditor paid.
What’s Needed to Qualify for Revenue Based Factoring?
- Revenue and bank activity requirements vary by program; credit card acceptance is not a universal requirement.
- You must be in business for at least 3 months
- You must be a US citizen or have Visa
- A signed and complete application
- Credit card processing statements, if applicable and requested
- Four months of recent bank statements
What Paperwork is Needed to Qualify for Revenue Based Factoring?
- A signed and complete application
- Credit card processing statements, if applicable and requested
- 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:
A business line of credit lets you borrow up to an approved limit, repay and draw again, subject to the agreement. Some lines are unsecured; others are secured by receivables or other assets.
A line of credit is a credit facility with borrowing and repayment obligations. Unlike a lump-sum term loan, it generally allows multiple draws within the approved limit, subject to availability and the agreement.
Providers may consider revenue, cash flow, credit history and other financial information when setting a credit limit. A line secured by invoices or receivables should not be described as unsecured.
To assess eligibility, the provider reviews an application and supporting financial records. Approval timing and documentation requirements vary by product and provider.
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
- Credit requirements vary by provider and product
- 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.
An unsecured loan may still require a personal guarantee. Guarantees can be limited or broad and may create personal liability; their scope is defined by the agreement, not simply by whether fraud occurs.
Review all guarantee, security and default provisions before signing. The word unsecured does not, by itself, eliminate personal liability or the provider’s legal remedies.
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.
This overview includes loans, lines of credit and receivables-based funding. Availability and terms differ by product and provider; review the written offer to understand which type you are considering.
Why Unsecured Business Funding?
Banks and nonbank providers may offer secured or unsecured financing. Eligibility depends on the product and underwriting, including factors such as credit history, time in business and cash flow.
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.
An unsecured loan does not require pledged collateral, but it may require a personal guarantee. Other financing described on this page may include security interests or liens and should be assessed separately.
The amount of the loan is dependent upon your:
- Business’ credit score
- Average monthly bank balance, and
- Annual revenue
Funding amounts and terms depend on underwriting, existing obligations and the specific program. Recent revenue may be a factor, but it does not by itself establish an approved amount or repayment term.
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.
Secured financing is backed by specified collateral, which may include business assets or receivables. A personal guarantee is a separate obligation and may be required even for an unsecured loan.
Closing a business or losing revenue does not automatically cancel a loan or guarantee. For a receivables purchase, obligations depend on the agreement and applicable law; there is no blanket exemption from payment.
Default can lead to fees, collection activity, legal action or enforcement of a guarantee or security interest, where permitted by the agreement and applicable law.
Excel Capital may be the funding provider or may arrange funding with a partner, depending on the transaction. Your agreement identifies the provider and the obligations that apply.
If you anticipate difficulty meeting an obligation, contact Excel and the provider identified in your agreement promptly to discuss available options. Any accommodation requires agreement and is not guaranteed.
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.
No financing option fits every business. The points below focus on unsecured loans; receivables purchases and secured facilities can have different benefits, costs and obligations.
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.
Some providers offer a fast application process, but approval and funding depend on underwriting, complete documentation and bank processing.
A decision or deposit within 24 or 48 hours is not guaranteed. Confirm the expected timeline with the provider handling your application.
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
An unsecured loan can allow borrowing without pledging specific assets as collateral. This does not mean that all bank loans require collateral or that unsecured borrowing is free of personal liability.
A personal guarantee may still be required. If an agreement grants a security interest in future receipts or other business assets, that is a separate security provision to review carefully.
Business closure does not automatically release the business or a guarantor from its obligations. The agreement and applicable law determine the consequences.
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.
Borrowing without pledged collateral can be useful, but a personal guarantee may still be required. Compare the obligations and total cost of each offer.
Loan terms and payment schedules vary by program and provider. Confirm the repayment term, payment frequency and total repayment in the written offer.
Unsecured business loan rates and costs depend on the product, provider and underwriting. Options may be available for applicants with bad credit, but approval is not guaranteed. Compare written offers, including fees, total repayment and APR where provided.
How to Qualify for an Unsecured Business Loan
Some bank programs have demanding credit and operating-history requirements. Other programs use different criteria, so eligibility should be assessed for the specific product.
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.”
Providers may consider credit history alongside cash flow, revenue and other factors. Their underwriting criteria differ by product.
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.
Credit requirements vary by product and funding provider. There is no single minimum score that applies to every option available through Excel Capital, and meeting a score threshold does not guarantee approval.
For direct funding, Excel evaluates the application under the applicable program’s criteria. When funding is arranged through a partner, that provider applies its own underwriting requirements.
Revenue and time in business are common screening factors. The examples below are not universal approval requirements; confirm the current criteria for the specific program with Excel or the funding provider.
- 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.
Once you apply, Excel or the relevant funding partner will review the application and supporting documents. Approval and deposit timing vary; a decision or funding within 24 hours is not guaranteed.
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 and nonbank providers can offer unsecured business financing. Credit requirements, personal guarantees and other conditions vary by institution and product.
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.
Unsecured does not mean that all assets are protected from collection. A provider may pursue legal remedies or enforce a personal guarantee, subject to the agreement and applicable law.
For secured financing, pledged collateral may also be at risk after default. Review the guarantee, security and default provisions before accepting any offer.
What is the interest rate on an unsecured business loan?
Unsecured loans may carry higher rates than comparable secured financing, but actual pricing depends on the provider, product and applicant.
There is no single rate or term that applies to all applicants. Request a current written offer showing the rate, fees, total repayment and payment schedule. A factor rate used for some receivables purchases is not an interest rate or APR.
Can I get a business loan without a personal guarantee?
Some financing programs do not require a personal guarantee; others do. An unsecured loan can still require one. Check the written offer and agreement for the guarantee’s scope before signing.
Can I qualify for a business loan?
Approval depends on the product’s underwriting criteria and the provider’s review. Being in good standing or meeting a credit-score threshold does not guarantee funding.
Applicants with weaker credit may have options through Excel’s direct funding or partner providers, depending on the program and their financial circumstances. Every application remains subject to review.
What credit score is needed for an unsecured business loan?
Minimum credit scores differ by provider and program. Banks and nonbank providers may also assess revenue, cash flow, business history and existing obligations.
Confirm the current credit requirements for the specific product you are applying for. Meeting a minimum score does not, by itself, establish eligibility or guarantee approval.