Unsecured Business Loans

An unsecured small business loan doesn’t require any collateral. They’re rare and often difficult to obtain because it depends solely on the creditworthiness of the business and the owner. The exception to this is funding through a business credit card, but the credit limits often aren’t as much as a loan or line of credit.

Secured business loans are loans that are backed by collateral. Usually things like real estate, equipment, inventory and other valuable business assets that the bank can seize and sell to recoup their money if the loan isn’t repaid.

Banks tend to prefer secured loans that require specific collateral like those listed above. Your loan amount will be limited by the value of your assets. For example, a bank may allow you to borrow up to 75% of the value of appraised real estate.

Unsecured and general-lien loans typically come with a higher interest rate than a loan that collateralizes a specific asset, but do offer some benefits you should consider:

• Fast application process, approval and funding. Online business lenders like OnDeck have become synonymous with quick approval times — even within an hour or less.^† And, once approved you can have the funds available in your account as quickly as 24 to 48 hours. So if you need to act fast, it could be a good fit for your business.
• Loan value isn’t dependent on your collateral. When applying for a traditional secured loan, the amount you can receive is commonly capped at a percentage of the value of the collateral. This is called the loan to value ratio. With an unsecured loan, you could qualify for more money because the lender is making loan decisions based on the health of your business.
• It could strengthen your credit profile. If your lender reports your monthly payment history to the appropriate business credit bureaus (like OnDeck does), your timely payments will help you build, or strengthen, your business credit profile. Of course this is usually the case with a traditional secured loan too, and is important enough that you should ask about it before you sign on the dotted line.

Banks don’t generally approve business loans without the security of some form of specific collateral. Banks prefer to write loans based on the value of those assets and take liens on them. By doing this, the bank can significantly reduce its lending risk. This can disqualify businesses without assets that are valued highly by a bank or have assets that are difficult to value or sell — but would otherwise be a good potential business borrower.

OnDeck makes loan approvals to small businesses based on business fundamentals like cash flow, credit history and other metrics that demonstrate a healthy business. OnDeck doesn’t make decisions based on the value of any particular business asset. OnDeck considers dozens of factors when evaluating the creditworthiness of a business. This makes it possible for a healthy business to secure a business loan, even if it doesn’t have specific assets that could be used as collateral.

When a small business takes a term loan from OnDeck, a general lien is placed on the business’s assets until the loan has been paid off (additionally, OnDeck doesn’t take a security on specific assets of the business when you take a line of credit with us). The business owner does provide a personal guarantee for the loan, but there is no lien on the owner’s personal assets. In this way, business owners can get funding in as fast as one business day without needing a specific amount of real estate, inventory or other hard assets, and without needing to have their specific assets appraised and valued.