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Unsecured Vs. Secured Business Loans: Which Is Better?

Unsecured Vs. Secured Business Loans: Which Is Better?

Unsecured Vs. Secured Business Loans: Which Is Better?

Choosing the proper financing method for your business is crucial. Business loans are pivotal in propelling businesses forward, offering them the liquidity needed for various operations. When considering a business loan, you’re likely to stumble upon two primary categories: unsecured and secured business loans. But which is superior? Let’s delve into their intricacies to find out.

The Foundations of Business Loans

Before diving into the specifics of unsecured business loan companies, it’s pivotal to understand what differentiates the two. The primary distinction lies in collateral. While secured loans require collateral (an asset that can be seized if repayment isn’t met), unsecured loans don’t demand such a safety net, relying more on creditworthiness.

Features of Secured Business Loans

Collateral Obligations

Any secured loan mandates the borrower to pledge assets as collateral. This can encompass property, equipment, or other valuable personal assets. These physical assets are security, ensuring lenders can recoup their money if borrowers default.

Interest Rate Dynamics

With the assurance of collateral, lenders often perceive secured loans as less risky, translating to lower interest rates for borrowers.

Credit Score Flexibility

While a credit check is standard, secured loans usually offer more leniency. Even businesses with less-than-perfect credit might qualify if they possess valuable assets to pledge.

Features of Unsecured Business Loans

No Collateral

Unsecured business loans don’t demand assets as a safety net. This can be advantageous for businesses that need more substantial assets or are willing to risk them.

Higher Interest Rates

Given the absence of collateral, lenders view unsecured loans as riskier, leading to elevated interest rates.

Creditworthiness is King

Your business and personal credit scores become paramount. Lenders rely heavily on credit history, ensuring borrowers have a consistent track record of fulfilling financial obligations.

Pros and Cons of Each Type

Secured Business Loans


  • Lower interest rates, making them cost-effective over time.
  • Potentially more significant loan amounts due to the assurance of collateral.
  • More flexible credit score requirements.


  • Risk of losing pledged assets.
  • Lengthier approval process as asset valuation may be needed.

Unsecured Business Loans


  • Quick approval processes.
  • No risk of losing business assets.
  • Ideal for businesses without significant collateral.


  • Higher interest rates can increase the cost of borrowing.
  • Stringent credit requirements.
  • Typically, lower loan amounts.

Factors to Consider Before Choosing

Business’s Financial Health

If your business showcases strong financial performance and creditworthiness, an unsecured loan might be easier to obtain.

Intended Use of Funds

A secured loan might offer better terms for long-term investments like property or machinery. Short-term needs, like working capital, might be better served by unsecured loans.

Risk Appetite

Are you comfortable using your assets as a safety net? If not, an unsecured option might be more appealing despite potentially higher costs.

A Practical Case Study

Consider a startup tech company aiming to scale operations. While their revenue stream is promising, they need a long operational history and significant assets. An unsecured loan might be their best bet. On the other hand, a well-established manufacturing company seeking to acquire new machinery might find the terms of a secured loan more favorable.

Secured vs. Unsecured Loans: Which Financing Option Suits Your Business?

Selecting the ideal loan largely hinges on your current situation and financial objectives. Remember, secured loans typically have a smoother approval process since they present less risk to lenders. This is particularly relevant for those with limited or unfavorable credit histories. From a lender’s perspective, they seek some form of guarantee that they aren’t just taking a high-risk chance—especially when they’re essentially lending others’ funds with the hope of responsible repayment.

The benefits of secured loans often encompass more favorable conditions, like reduced interest rates, elevated loan ceilings, and extended repayment durations. Sometimes, a secured loan might be the sole avenue, especially for high-value endeavors like acquiring equipment or making a significant business purchase.

Conversely, you might not possess or wish to commit any assets as collateral. You could be looking for a quick financial buffer without fussing over higher interest rates, especially if you aim to settle the debt swiftly. If long-term commitments or high borrowing capacities aren’t on your checklist, an unsecured loan could align more with your needs.

Understanding the Basic Business Loan Application Process

To navigate the business loan application effectively, consider these essential steps:

Gather Necessary Documentation

Assemble the required documents meticulously. Ensure your application is thorough and showcases diligent financial planning. Incorporate elements like a detailed business plan, financial forecasts, your resume, income statements, balance sheets, cash flow outlines, and personal financial documents, including tax returns from the past three years.

Evaluate the Required Amount

Accurately gauge the amount you require. Seeking an insufficient amount might have you revisiting the loan process sooner than desired, while an excessively high request could raise concerns about your financial judgment.

Identify the Loan’s Purpose

Clarify the objective of the loan. Using funds for business expansion or technology enhancement is often viewed more positively by lenders compared to settling existing loans or investing in non-crucial assets.

Select an Appropriate Lender

Analyze and decide the most suitable lending source for your business: traditional banks, non-banking financial institutions, crowdfunding platforms, or alternative funding websites.

If you’re contemplating how to exit a secured loan agreement, the specifics might differ based on the lender. Often, settling the loan or relinquishing the secured asset is the straightforward way out.

Deciphering Lender’s Criteria for Creditworthiness

Regardless of the loan type—secured or unsecured—your repayment habits can influence your credit rating. Lenders relay your payment behaviors to credit agencies. To maintain a spotless credit record, avoid delayed payments or loan defaults.

In scenarios where a secured loan isn’t honored, lenders hold the right to reclaim the purchased item or initiate foreclosure proceedings in the case of properties. Such occurrences tarnish credit histories. Thus, secured loans should be cautiously approached despite attractive terms or low-interest rates as they inherently carry risks.

Lenders often rely on the famed “Five C’s” framework to appraise borrowers based on their financial trajectory and resources:


This encompasses the specifics of your proposal and the broader economic landscape. Lenders assess the purpose behind the loan request and weigh the odds of your business’s success in the prevailing market environment.


As discussed earlier, assets that can secure the loan are vital for any secured loan application.


Often synonymous with “Cash Flow”. Your business’s revenue patterns significantly influence lenders’ trust in your repayment capacity. Consistent revenue streams are always a plus in the lender’s book.


Lenders scrutinize various factors to assess your reliability. This includes credit ratings, business trajectories, submitted business blueprints, and public feedback or reviews. Essentially, how you’re perceived in public influences the lender’s judgment.


Have you consistently poured personal funds into your enterprise? Significant self-investment can be an encouraging signal for lenders, suggesting that the business owner is deeply committed.

These factors collectively aid financial institutions in gauging a borrower’s propensity to honor loan commitments. In the subsequent sections, we delve deeper into ways to elevate your creditworthiness.

Introducing Sunwise Capital’s Unsecured Business Loans

For many aspiring entrepreneurs and established business owners, accessing capital without compromising personal assets is a crucial concern. Sunwise Capital’s unsecured business loans provide an ideal solution to this challenge, offering the financial lift needed without collateral constraints.

Overview: Sunwise Capital Unsecured Business Loans

Whether launching a startup or seeking to grow an existing enterprise, having the right financial support can make all the difference. Sunwise Capital’s unsecured business loans are designed with your business’s growth in mind. Unlike secured financing, which often necessitates leveraging assets such as real estate, inventory, or equipment, our unsecured loans focus on the business owner’s creditworthiness.

Our Unsecured Business Loan Features

  • Cost-Free Application: No upfront charges or obligations.
  • Swift Funding: Receive your funds in as little as 24 hours.
  • Loan Range: Borrow from $10,000 up to $2 Million.
  • Competitive Rates: Starting at a low $7.5%

Uncover the Best Unsecured Business Loan for Your Needs

Depending on your unique business circumstances and goals, Sunwise Capital offers a variety of unsecured business financing options:

  1. Unsecured Short-Term Loans

Perfect for businesses in their infancy, facing credit score challenges, or under tight funding deadlines. Our simplified online application process means you can receive approval in mere minutes. Key benefits of our short-term loans include:

  • Approval for all business types.
  • Zero collateral prerequisites.
  • Competitive interest rates.
  • Numerous approval opportunities.
  • Incentives for prompt repayments.
  1. Unsecured Business Line Of Credit

It is an ideal option for those who desire a sustainable credit line without tying up assets. Advantages of our business line of credit include:

  • No early repayment fees.
  • Competitive interest rates from 7%+.
  • Boosts your credit score over time.
  • On-demand cash access.
  1. Unsecured Invoice Financing

Tailored for businesses with outstanding accounts receivable. This financing solution ensures you get paid for your services without waiting for clients. Highlights of invoice financing include:

  • No dependency on a personal credit or financial history.
  • Fast approval rates.
  • Solely secured against your outstanding invoices.
  1. Merchant Cash Advance

Suitable for businesses that desire funding in exchange for a fraction of future sales. This flexible financial solution is particularly suitable for sectors with seasonal variations like retail or dining establishments. Features of our MCAs include:

  • High approval rates.
  • Loans anchored against future transactions of business credit cards.
  • No collaterals.
  • Flexible repayment term options based on cash flow.

With Sunwise Capital’s varied unsecured business loan offerings, you can find the perfect financial fit to fuel your business’s growth ambitions. Choose wisely, and let us be your partner in success.

Is an SBA Loan Secured or Not?

Under the SBA’s 7(a) program, loans exceeding specific thresholds necessitate collateral. However, for smaller amounts, unsecured SBA loans can be availed. For instance, collateral isn’t obligatory for Standard 7(a) loans under $25,000. But for loans above $350,000, equivalent collateral, as close to the loan value as feasible, is required. An SBA loan’s secured or unsecured nature influences credit scores, business finances, and the lender’s perspective. Typically, secured loans are more affordable, but they pose greater risks to the borrower and vice versa for unsecured loans. The collateral criteria for SBA loans can vary based on the loan’s size and type. This guide elucidates which loans need security and contrasts SBA loans with other financing alternatives.

Types Of SBA Loan Collaterals

The SBA’s primary avenue for aiding small business funding is the 7(a) loan program, encompassing six distinct loans with varied terms.

Standard 7(a)

For loans under $25,000, the Standard 7(a) program doesn’t mandate collateral. The collateral stipulation is at the lender’s discretion when borrowing above this amount but under $350,000. Specific guidelines from the SBA on collateral kick-in for loans exceeding $350,000.

SBA Express

SBA Express loans mirror the 7(a) small loans in collateral prerequisites. No collateral is necessary for loans under $25,000. But for loans between $25,000 and $350,000, lenders follow their prevailing collateral norms.

7(a) Small Loan

Lenders don’t need collateral for 7(a) small loans up to $25,000. For amounts surpassing this, the purchased assets with the loan and other fixed assets should be provided as collateral. Beyond this baseline, lenders employ their standard non-SBA loan collateral practices.

International Trade

The first lien on the financed assets or equipment anchors international Trade SBA loans. Alternate business assets might also serve as collateral. Depending on the SBA’s evaluation, secondary liens or extra collateral, including personal guarantees, may be necessary.

Export Working Capital

Every Export Working Capital (EWCP) loan demands security, primarily through the financed export-related inventory and receivables. Moreover, business owners with at least a 20% stake must extend a personal guarantee for their EWCP loan.

Export Express

The Export Express initiative simplifies SBA-supported finance for exporters, covering both loans and credit lines. The SBA hasn’t set explicit collateral guidelines; lenders deploy their regular non-SBA loan collateral policies, making these loans potentially secured or not based on lender discretion.

Eligibility for Unsecured Business Loans at Sunwise Capital

Understanding the eligibility criteria is crucial before applying for an unsecured business loan at Sunwise Capital. While meeting these criteria sets the foundation, they don’t guarantee loan approval. Other factors come into play during the final evaluation. Here’s a breakdown of what we look for:

  1. Creditworthiness – Personal and Business Credit Scores:

  • Personal FICO Score: A minimum score of 500 is essential. Notably, we consider applications with sub-optimal credit scores as well.
  • Business Credit Score: A reasonable score reflecting good business credit habits.
  1. Time in Business:

  • Duration: Your business should have been operational for at least one year.
  1. Revenue – Annual and Monthly:

  • Annual Revenue: Your business should generate $150,000 or more annually.
  • Monthly Deposits: A minimum of $15,000 in monthly bank deposits is required. For businesses operating less than a year, this becomes even more critical.
  1. Business Structure:

  • Type: We cater to various business structures, including Sole Proprietorships, LLCs, Subchapter S Corporations, and C-Corporations.
  1. Geographical Location:

  • Location: Your business must be situated anywhere within the United States.
  1. Loan Amounts:

  • Amount: We offer unsecured business loans ranging from $10,000 up to $2 million, depending on eligibility and need.
  1. Repayment Structure:

  • Loan Term: Our loans come with flexible terms ranging from six to 18 months.
  • Repayment Schedules: Depending on the nature of the loan and borrower qualifications, repayment can be structured daily or weekly. Monthly loan repayments are available as unsecured financing options for highly qualified businesses and borrowers.

When considering an unsecured business loan with Sunwise Capital, keep in mind that while these fundamental criteria provide a starting point, our final decision is influenced by a comprehensive review of your application and related financial documentation.

Boosting Your Business Loan Approval Odds

Understanding the intricacies of secured versus unsecured loans and the essentials of loan approval is crucial. However, the journey doesn’t end there. It’s time to position yourself optimally should you seek a loan. Prioritizing your business credit health and maintaining a strong personal credit score can substantially enhance your loan approval chances.

Consider the following strategies to elevate or construct a robust business credit score:

Lay the Groundwork Early

Launch your credit-building journey well before you’re in dire need of funds. A lengthier credit history is more favorable than a short-lived one. If you aim to secure a bank loan, a commendable personal credit score might be necessary, even if not all lenders require it.

Maintain a Positive Financial Record

Lenders can access more information about your business than you might realize. Your business credit report will feature all public records associated with your business name, including liens, judgments, or bankruptcies. Such records can dampen your credit rating. For instance, a bankruptcy remains on a credit report for nearly ten years, while liens and judgments linger for around seven.

Vigilantly Monitor Your Credit

Promptly address discrepancies or issues you spot in your credit report by lodging a dispute with the respective credit bureau. Such incidents can negatively influence your credit score, whether it’s a genuine error or potential fraud. Thankfully, credit monitoring services can aid you in tracking any dubious credit activities or unexpected score drops. Act swiftly to rectify any anomalies; they might resurface during crucial financial undertakings.

Personal Credit Carries Weight

Many lenders perceive personal credit behavior as a reflection of one’s financial responsibility in the business realm. If personal credit management could be better, it might lead them to question the handling of business finances. This perspective explains why many lenders request personal credit scores. While this can be vexing, especially for thriving businesses with proprietors lacking personal credit, it’s a prevailing practice among significant banks.

Prioritize Timely Payments

Adherence to payment deadlines is non-negotiable. While late fees can be bothersome, they pale in comparison to the detrimental impact late payments can have on your credit score. Some financial institutions value early payments so much that it’s the only way to achieve a flawless credit score in their books.

Common Unsecured Business Loan FAQs

  1. What types of unsecured loans are available?

Various forms of unsecured loans exist, such as term loans, microloans, or lines of credit. Among these, term loans stand out due to their potential high borrowing limits and adaptable term durations.

  1. Who is eligible for an unsecured loan?

Eligibility largely hinges on the lender’s stipulations. Generally, businesses should satisfy criteria like minimum annual revenue, specific operational durations, and requisite credit scores. Additionally, provisions might necessitate operations within certain jurisdictions or adherence to specific corporate structures.

  1. What can you utilize an unsecured business loan for?

The application of an unsecured business loan varies according to the loan type. While many loans don’t impose stringent usage limitations, distinct loans are tailored for unique purposes. For instance, unsecured term loans are apt for single-time acquisitions, while business credit lines cater to recurrent minor expenses and offer repeatable access after settling prior balances.

  1. Are unsecured loans detrimental to your credit?

Your credit may suffer from unsecured loans if you default. Given their elevated risk profile to lenders, these loans might have steeper interest rates. Additionally, loan applications could transiently diminish your credit score due to mandatory credit checks by lenders.

  1. How much does an unsecured business loan typically cost?

Comprehensive costs for unsecured business loans include initial down payment, interest rates, and lender-imposed fees. While interest remains the primary cost, rates might fluctuate between 7% and 99% APR, contingent on the loan type and credit standing. Certain lenders may also necessitate down payments exceeding 10% of the loan value and impose origination charges, closure expenses, or other supplementary fees.

  1. How challenging is it to secure an unsecured business loan?

Obtaining an unsecured business loan is manageable if your business meets conventional qualifications. Typically, a robust personal credit score (670 or more), a minimum of two operational years, and an ascending revenue trend are favorable for approval. However, businesses not meeting these standards might need to scout for a flexible online lender or contemplate collateral to enhance their approval likelihood.

  1. What are the consequences of defaulting on an unsecured business loan?

Defaulting after a couple of missed monthly payments can be rectified by covering the due amounts alongside any additional charges and interest. Yet, consistent payment failures might lead to loan defaults. Although unsecured business loans aren’t directly collateral-based, lenders retain the right to pursue your business assets upon defaults legally. Moreover, if you’ve endorsed a personal guarantee, your individual assets might be at risk if your enterprise fails to repay.

Disclaimer: The details provided here are general in nature. Loan terms, interest rates, and qualifications can differ based on numerous factors. We encourage you to reach out to Sunwise Capital for personalized assistance and better terms tailored to your specific needs.

The supremacy of secured vs. unsecured business loans isn’t one-size-fits-all. It hinges on individual business needs, risk tolerance, financial health, and long-term objectives. It’s crucial to meticulously evaluate both options, with financial advisement, ensuring your chosen online lender aligns seamlessly with your business trajectory.


Mark J. Kane, Founder & CEO of Sunwise Capital, is a distinguished entrepreneur with over 16 years in business financing. Beginning as a psychologist, he quickly became a trailblazing Hospital Administrator. Mark has built multiple ventures, notably accelerating a startup to $18M within months. His transition to Sunwise Capital stems from a deep-seated desire to empower business owners with strategic financial solutions. Recognized for his expertise, Mark's leadership at Sunwise Capital reflects his commitment to fostering business growth and success. about the author.

Category: Advice

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