Best Business Loans in January 2026

An unsecured business loan is a type of financing that doesn’t require any collateral to secure the funds. Unlike secured business loans, which are backed by assets such as real estate, vehicles, or equipment, unsecured loans are granted based on the borrower’s creditworthiness and business performance.

Because there’s no physical asset tied to an unsecured loan, it typically poses a higher risk for lenders. To offset that risk, lenders often set stricter approval criteria and may charge higher interest rates compared to secured financing. However, the advantage is clear—you don’t have to put your valuable business or personal assets on the line.

Unsecured small business loans allow you to access funding without pledging any assets as collateral. As this offers protection for your business or personal property, it also increases the lender’s risk.

To minimize that risk, lenders often enforce strict qualification criteria. This means you may need a strong credit score, a well-established business (usually 2+ years), and solid annual revenue to be considered. In many cases, you’ll also face higher interest rates compared to secured loans.

Instead of collateral, lenders commonly require a personal guarantee from the business owner or owners. By signing this agreement, you personally commit to repaying the loan if your business can’t. Should you default, the lender has the legal right to pursue your personal assets, like your car or home, to recover the outstanding balance.

There are several unsecured business loan types available that don’t require collateral. These include:

Here are the major steps to follow if you’re looking to apply for an unsecured business loan:

Unsecured business loans are available through a variety of sources, including banks, credit unions, and online lenders. As traditional financial institutions may offer unsecured term loans or lines of credit, they often have stricter requirements and a longer approval process.

For faster funding, many small business owners turn to alternative lenders, particularly fintech companies that leverage technology to assess your creditworthiness. These lenders may charge higher interest rates, but they usually offer quicker approvals, fewer documentation requirements, and more flexibility than banks.

According to Phillip Russo, a business consultant at the Louisiana Small Business Development Center, working with an alternative lender can be a smarter option than relying on credit card debt. “The application process is usually quick, simple, and won’t hurt your credit score,” Russo explains. “These unsecured loans are ideal for startup expenses and working capital needs.”

Selecting the right unsecured business loan can make a significant difference in your long-term financial health. Once you’ve received loan offers, here are the main factors to evaluate:

Interest Rates
Interest rates on unsecured business loans can differ significantly depending on the lender and the loan type. A lower rate basically means lower total borrowing costs, so be sure to compare APR (Annual Percentage Rate) to understand the true cost of the loan.

Repayment Terms
Unsecured loans may come with daily, weekly, or monthly repayment schedules. Make sure the payment frequency aligns with your cash flow and that your business can meet the required installments without strain.

Funding Speed
Consider lenders that offer fast business loans if you need quick access to capital. Some alternative lenders can disburse funds as soon as the same day of approval, though this speed often comes with higher interest rates.

Fees and Charges
Always review the loan agreement carefully for hidden fees, such as origination charges, late payment fees, or prepayment penalties. Understanding the full cost structure can help you avoid unexpected expenses.

Loan Usage Restrictions
Some lenders place limits on how you can use the loan proceeds. Before you sign, confirm that the loan terms allow for your intended business purposes, whether it’s for inventory, equipment, payroll, or working capital.

Although unsecured business loans offer valuable benefits for growing businesses, it's essential to weigh the potential risks before borrowing.

Unsecured loans can affect your credit score if you miss payments or default, as lenders report negative activity to credit bureaus. Even applying for an unsecured loan may cause a temporary credit score dip due to a hard credit inquiry. Timely repayments, however, can help build a positive credit history and improve your credit profile over time.

To secure approval for an unsecured small business loan, you’ll need to meet several standard qualifications. As exact criteria vary by lender, here are the most common requirements:

Business Revenue
Lenders generally require proof of stable and sufficient revenue to assure your business can comfortably manage loan repayments.

Debt-to-Income Ratio
Securing additional funding becomes difficult if your business is already burdened with significant debt. Lenders want to see that your income isn’t primarily tied up in other loan payments.

Business Age
Many lenders prefer businesses that have been operating for at least 6 months to 2 years. The longer your business history, the more trustworthy you appear to lenders.

Credit History
Your personal and business credit scores play a big role in loan approval. Most lenders expect a minimum personal credit score of 600 or higher for unsecured financing.

Industry Type
Some lenders avoid offering loans to certain industries considered high-risk, such as gambling, adult entertainment, or speculative investments. Be sure to check if your industry is eligible.

For entrepreneurs, one sobering reality is that approximately 80% of new businesses fail within their first two years. This high failure rate significantly increases the risk for lenders, especially when there’s no collateral to back the loan.

To better understand this from a lender’s perspective, imagine this scenario: You’re approached by 10 different individuals, each requesting a $10,000 loan. However, statistically, only 2 out of 10 are likely to repay. That means you’re potentially lending $100,000, with the expectation of only recovering $20,000. Clearly, this is a major loss and not a sound financial decision.

Now, consider the alternative: Each borrower offers collateral, such as a car, business equipment, or even stocks, valued at or above the loan amount. If 8 of those borrowers default, the lender can legally seize and liquidate the pledged assets to recover the funds. This drastically reduces the financial risk for the lender.

That’s why many lenders prefer secured business loans, as the presence of collateral offers a layer of protection that unsecured loans simply can’t provide.