Many business owners eventually face the same question: how do you get the cash you need to support your business without using your house, car, or equipment as collateral? Unsecured business loans are designed to fill this gap. These types of loans are fast, flexible, and widely available, but they’re also more expensive and complicated than secured business loans. The global market for unsecured business loans was valued at $261.6 billion in 2024. Understanding how these loans work and when they make sense for a business can change the way you think about financing growth.

Below, we’ll explain the mechanics, benefits, risks, and uses of unsecured business loans.

What’s in this article?

• What are unsecured business loans?
  
• How do unsecured business loans work?
  
• What are the advantages of unsecured business loans?
  
• What are the risks and challenges of unsecured business loans?
  
• What eligibility criteria do lenders use for unsecured loans?
  
• What types of businesses are the best fit for unsecured loans?
  
• How do unsecured business loans compare to secured loans?
  
• How Stripe Capital can help
  

What are unsecured business loans?

An unsecured business loan is capital that a lender extends to a business without tying the debt to a specific asset. Instead of evaluating the resale value of your property or equipment, lenders look at your credit profile, cash flow, and revenue to decide whether to lend and at what cost. Funds can be used for day-to-day working capital, marketing, hiring, inventory, or other legal business purposes.

Unsecured loans come in a few familiar forms: short-term loans, revolving lines of credit, and merchant cash advances. Because lenders have less protection, unsecured loans tend to have higher interest rates and shorter repayment terms than secured loans.

The key feature of this type of loan is there’s no dedicated collateral. Some lenders file a blanket lien on business assets or require a personal guarantee, but they can’t repossess a specific asset without going through legal channels.

How do unsecured business loans work?

With secured loans, lenders focus on the asset you pledge. With unsecured loans, the focus shifts to the health of your business and your personal credit. Approval comes down to whether you look financially strong enough to handle regular repayments.

Once you’re approved, the funds can arrive in different formats:

• A term loan is a lump sum paid back on a set schedule, often up to 18 months.

• A line of credit is a draw-as-needed structure, with interest on only what you use.

• A merchant cash advance is a lump sum in exchange for a percentage of future sales, with repayments deducted daily.

Payment providers like Stripe can analyze payment processing data in real time to prequalify businesses for working capital loans or cash advances. Funds are often available the next day, and repayment happens automatically through a small cut of each transaction. This makes unsecured loans more accessible, although eligibility and loan size depend on your sales volume.

What are the advantages of unsecured business loans?

Unsecured loans can be a lifeline for businesses that need capital but don’t have collateral.

Here are some of the biggest advantages:

• No collateral at stake: You don’t have to pledge property, equipment, or inventory. This makes a big difference for companies that don’t have many assets and founders who prefer not to risk personal property.

• Fast access to funds: With no collateral to appraise, lenders can move quickly. Online platforms often approve and fund loans within days, sometimes hours. Some providers even generate prequalified offers that can be accepted instantly.

• Simplified paperwork: Applications are easier. You’ll still need to provide financial records, but you skip the extra documentation tied to valuing collateral.

• Flexible use of funds: Money can flow to whatever area or project matters most at the moment, whether that’s covering payroll, fueling marketing, or buying inventory. In some cases, repayment scales with revenue, which can ease pressure during slow periods.

• Bankruptcy protection: In certain jurisdictions, unsecured debt can be discharged in bankruptcy. With secured loans, pledged assets can still be repossessed.

Unsecured business loans aren’t an answer for everything. But when time is short or collateral is limited, the advantages can outweigh the costs.

What are the risks and challenges of unsecured business loans?

Unsecured loans can be a powerful tool, but the very features that make them accessible also introduce substantial risks.

Here’s what you should know before you explore this option.

Higher-cost capital

Because lenders have no collateral to fall back on, they protect themselves with higher pricing. Depending on the location, interest rates can span from the mid-single digits to double digits. As of 2025, unsecured business loans in the US have annual percentage rates (APRs) that range from 7%–75%, depending largely on creditworthiness and lender type. You might also see origination fees, daily debit structures, or factor rates that make the effective cost much higher than the headline number. The only way to know what you’re paying is to calculate the total dollar cost, not just the APR on paper.

Limits on size and timeline

To limit their exposure, lenders often restrict how much you can borrow and how much time you have to repay. An interruption in revenue can throw off your ability to keep up with payments.

Strict eligibility criteria

Collateral gives lenders confidence. Without it, they lean hard on your financial track record. Strong personal and business credit, proven revenue, and consistent profitability are often prerequisites for the best rates. Borrowers with weaker credit are usually pushed into higher-cost options, sometimes with additional conditions attached.

Personal guarantees and blanket liens

Many unsecured products still tie business owners to repayment through personal guarantees. Others file liens that allow them to claim all business assets in the event of default. Even if no single asset is “pledged,” the safety net isn’t as wide as it might seem.

Potential impact on credit health

Unsecured loans are almost always reported to credit bureaus. A late payment or default can impact your credit. Because many of these products rely on frequent automatic withdrawals, even small disruptions in cash flow can cause overdrafts, missed payments, and credit damage that lingers long after the loan itself is repaid.

Complex, opaque fee structures

Not all unsecured products follow the standard interest-plus-term model. For example, merchant cash advances rely on a factor rate—a fixed multiplier applied to the borrowed amount—not an interest rate. These structures make it hard to compare offers, and many businesses underestimate the true cost until repayments start to hurt.

What eligibility criteria do lenders use for unsecured loans?

With secured loans, collateral can offset weaker financials in a lender’s assessment. With unsecured loans, approval depends almost entirely on the business’s financial strength and the owner’s credit profile.

Lenders typically weigh a mix of factors:

• Credit scores: Lenders look at personal and business credit scores. Newer businesses without established credit files will rely heavily on the owner’s personal score. A higher personal credit score can lead to better terms, while a lower score will mean higher-cost options.

• Revenue and cash flow: Lenders have annual revenue requirements that can vary considerably. Most will also want to see steady deposits of that revenue in a business checking account. They’ll often request bank statements or financial reports to verify.

• Time in business: Companies with at least 1–2 years of history are more likely to qualify. Startups with less history might still get approved, but usually at steeper rates. And the lender might ask for a personal guarantee.

• Existing debt load: High debt-to-revenue or debt-to-income ratios signal overextension and can impact approval rates.

• Documentation: Expect to provide tax returns, profit and loss statements, and sometimes a business plan. Strong documentation can help offset weaker credit.

• Personal guarantees or cosigners: Many lenders require a personal guarantee. A cosigner with strong credit can improve terms.

• Industry profile: Seasonal or volatile businesses often face more scrutiny than stable recurring revenue models.

What types of businesses are the best fit for unsecured loans?

Unsecured loans work best when the need is immediate, the payback timeline is short, and the business has the financial strength to bear higher costs responsibly.

Unsecured loans tend to be best suited to these types of businesses:

• Asset-light or early-stage businesses: Startups and service firms often don’t own the kind of equipment or property that traditional lenders require as collateral. Unsecured products let these businesses tap into financing based on credit and cash flow instead.

• Businesses with fluctuating revenue: Seasonal retailers, restaurants, hospitality groups, and agricultural companies can use short-term loans or credit lines to cover dips in revenue. Some repayment models even scale with sales, which reduces pressure in slower months.

• Digital and ecommerce companies: Online sellers rarely have large physical assets, but they do have steady sales data. Payment processors that already see their transaction histories can extend financing quickly, which makes unsecured funding a strong match for inventory and marketing needs.

How do unsecured business loans compare to secured loans?

The differences between secured and unsecured loans come down to collateral, cost, repayment terms, risk, and speed.

Collateral and approval

Secured loans rely on pledged assets (e.g., property, equipment, inventory) as security. This makes approval easier even for borrowers with weaker credit, because the lender has something tangible to fall back on. In contrast, unsecured loans put the focus squarely on personal and business credit, revenue, and cash flow. This makes it more difficult to qualify for unsecured loans if your financials aren’t solid.

Cost and loan size

Because collateral reduces risk for the lender, secured loans almost always come with lower interest rates and fees. They can also open the door to much larger amounts, sometimes reaching into the millions. Unsecured loans usually cap out in the low six figures, and the cost of capital can run much higher. In 2023, the small loans segment (up to $250,000) accounted for the largest share of the unsecured loans market at about 45%.

Repayment terms

Secured loans are designed for the long term, with repayment schedules that can stretch for years, even decades in the case of real estate. Schedules for unsecured loans are shorter—months or a few years at most—which means higher, more frequent payments.

Risk to the borrower

The downside of secured loans is clear: if you default, you lose the pledged asset. Unsecured loans don’t tie the debt to one specific asset, but they often come with personal guarantees or blanket liens that can still put your broader finances at risk.

Speed and fit

Secured loans take time: collateral must be appraised, and underwriting is more complex. Unsecured loans are faster, with approvals and funding often arriving in days. That makes unsecured loans better suited to short-term opportunities or businesses without substantial assets, while secured loans remain the tool of choice for large, long-term investments.

How Stripe Capital can help

Stripe Capital offers revenue-based financing solutions to help your business access the funds it needs to grow.

Capital can help you:

• Access growth capital faster: Get approved for a loan or merchant cash advance in minutes—without the lengthy application process and collateral requirements of traditional bank loans.

• Align financing with your revenue: Capital’s revenue-based structure means you pay a fixed percentage of your daily sales, so payments scale with your business performance. If the amount that you pay through sales doesn’t meet the minimum due each payment period, Capital will automatically debit the remaining amount from your bank account at the end of the period.

• Expand with confidence: Fund growth initiatives such as marketing campaigns, new hires, inventory expansion, and more—without diluting your equity or personal assets.

• Use Stripe’s expertise: Capital provides custom financing solutions informed by Stripe’s deep expertise and payment data.

Learn more about how Stripe Capital can fuel your business growth, or get started today.