Unsecured Business Line of Credit for Startups

By Susan Guillory · May 22, 2024 · 5 minute read

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Unsecured Business Line of Credit for Startups

It’s a dilemma: When you start your own business, you may have trouble getting approved for traditional financing because you haven’t been in business very long or haven’t established business credit. Yet you still need capital to launch your business, renovate space, or hire employees.

An unsecured business line of credit for startups may be one option worth considering. Be aware that they usually have higher interest rates because lenders consider them riskier.

Secured vs Unsecured Business Lines of Credit: The Difference

Before we talk about getting an unsecured business line of credit, let’s first look at the differences between secured and unsecured business lines of credit, as well as defining what a line of credit is.

With both types of small business lines of credit — unsecured or secured — you are approved for a maximum amount of funds. You may take out money from that line of credit, up to that maximum, and pay it back. This is in contrast to a loan, which gives you a lump sum of money that you then pay back over time.

Recommended: Unsecured Business Loans

For example, if someone is approved for a $10,000 line of credit, they might take out just $1,000 now and pay that back, and another $8,000 down the road when the money is needed. Whatever is paid back can be borrowed again.

It is possible to obtain a startup business loan with bad credit and no collateral, though it is not easy. More common is a secured line of credit that requires some sort of collateral as security against the financing. That might be a down payment or an asset like real estate or equipment.

Secured lines of credit may have lower interest rates than unsecured lines of credit because they’re generally considered less risky, given the collateral backing it. Should you not be able to pay back what you’ve borrowed, your lender will be able to take your asset acting as collateral to cover the debt.

On the other hand, an unsecured line of credit does not require any pledged collateral. It may be more difficult to win approval, as lenders may have stricter criteria for applicants than with a secured loan, including more stringent requirements around credit scores and revenue history.

Adequate funding is critical to succeeding with a small business . As a startup, you may not yet have assets you can use as collateral for secured lines of credit, so an unsecured business line of credit could be a better fit.

Recommended: Peer-to-Peer Business Loans

Alternatives to Unsecured Business Line of Credit for Startups

Some startups may find it difficult to qualify for an unsecured line of credit. Here are a few other small business financing options that may be available to startups.

Business Credit Cards

Business credit cards can provide new business owners with needed access to cash. They can also be an important tool to help business owners separate their personal finances from their business finances. Credit card issuers will generally review things like your personal credit score and income. Some options may require collateral or a personal guarantee.

SBA Microloans

The U.S. Small Business Administration (SBA) has a microloan program that offers loans up to $50,000 to certain eligible small businesses. These small business microloans can be used to finance things like working capital, inventory, furniture, and machinery or equipment. Other SBA loans may also provide eligible small businesses with funding to meet their needs.

Crowdfunding

There are a variety of crowdfunding platforms online that allow business owners to raise money to support their business. This process allows business owners to raise money for their project without taking on additional debt.

Equipment Financing

Equipment financing helps businesses that are in need of new or used equipment. With this type of loan, the equipment becomes the loan collateral, which means that lending requirements may be less strict than for unsecured loans.

Recommended: Bad Credit Business Loans

An Unsecured Business Line of Credit Can Give You the Boost You Need

While having access to cash when you need it, rather than in one lump sum, can be tremendously helpful to a startup, keep in mind that some lenders will charge more than others — whether that’s in fees, interest, or both — so it’s important to decide how necessary the financing is to your business right now.

Given that the line of credit options discussed here are unsecured, it may be difficult for some startups or applicants with lower credit scores to meet the minimum qualification requirements set by certain lenders.

Recommended: Business Loan vs. Personal Loan

The Takeaway

An unsecured business line of credit can help you fund and build your venture. The growth of many new businesses depends on their ability to access adequate capital. However, unsecured business lines of credit have higher interest rates and you may have to sign a personal guarantee, meaning you will be responsible for paying if the business fails.

If you’re seeking financing for your business, SoFi can help. On SoFi’s marketplace, you can shop top providers today to access the capital you need. Find a personalized business financing option today in minutes.

Get personalized small business financing quotes with SoFi's marketplace.

FAQ

How do I get an unsecured business line of credit?

Requirements for unsecured business lines of credit vary, but to apply, you’ll generally need information about your business, personal details, a government-issued photo ID, and financial statements. Not every business will qualify for this type of financing.

How do I get a $250,000 unsecured line of credit for my business?

Each lender has a different cap for lines of credit, so look around to find one that offers $250,000 or more, then review the requirements to see if you might qualify.

What is an unsecured line of credit for business?

An unsecured line of credit for business is a revolving credit account that a company can access and draw funds from up to a set limit. It’s a commercial lending product that does not require businesses to pledge any assets as collateral.

How do I qualify for an unsecured line of credit for small business?

Requirements vary from one lender to another, but you will likely need to meet eligibility standards like a minimum time in business. Your business may also need to generate strong annual revenues and meet a minimum level of creditworthiness to qualify for an unsecured line of credit.


SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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