It’s not only entrepreneurs who often seek unsecured business loans for startups in the U.S.; many established small business owners who can’t muster enough collateral do, too. However, because lenders take on more risk when they offer unsecured loans, they tend to up the interest rate you’ll have to pay, and they often specify tougher loan terms, too.
The Traditional U.S. Bank Network Tightens its Belt on Business Loans
The traditional banking network in the U.S. has been tightening its belt where business loans are concerned for several years. Fluctuations in the global economy are partly to blame. The Federal Reserve’s Senior Loan Officer Opinion Survey of January 2025 concluded that 12.5% of banks surveyed confirmed they were retrenching. That’s 4.8% higher than the figure at the same time 12 months ago.
With the ongoing war in Ukraine and President Trump’s tariff shenanigans, banks in the U.S. are anticipating continued economic uncertainty. A toughening of the application criteria needed to acquire unsecured business loans lessens their chances of getting caught out by defaults on repayments.
The result of this tightening of criteria for businesses applying for unsecured loans (lending money with no collateral backup) is that SMEs, which are the engine room of the global economy, are finding it much more difficult to secure the funding they need to get established or increase their turnover. If left unaddressed, the global economy would go into meltdown.
The Global Unsecured Business Loan Market
The emergence of the Fintech industry in the early 2000s came to the rescue. The marriage of the financial and technological world not only brought digital finance to the retail industry but also made it available to the global economy. New digital finance companies recognised the hole in the SME money market that traditional banks were leaving, and they quickly began seizing the opportunity.
The Rise in Demand for Alternative Finance Unsecured Business Loans
Digital finance companies have brought many new financial products to the market. From the business lending viewpoint, they include:
- Crowdfunding – gives you the opportunity to securing small amounts of funds from large groups of people. It’s down to the business owner to generate interest in your business idea or product. People can then elect to fund your business idea. Crowdfunding sometimes manifests itself as donations. This type of business lending is usually enacted via digital platforms.
- Peer-to-peer (P2P) lending – a more informal type of lending, which normally doesn’t require collateral. Similar to crowdfunding, P2P raises the funds for the business loan through a group of investors. The borrower then pays back the loan with interest over a set term. Because it is unsecured, rates and fees can vary.
Digital lenders also offer traditional-type term loans, both secured and unsecured. The reason that entrepreneurs are attracted to alternative finance lenders is that the application process is not as complex or protracted as that of traditional banks. It’s easier and quicker thanks to the application of new technologies such as AI, social media, and big data.
Applying for Unsecured Business Loans in the U.S.
If you apply to the Bank of America for a small, unsecured business loan, you must:
- Have a personal FICO score of at least 700.
- Be able to demonstrate 2 years in operation under the existing owner(s).
- Prove your business has a minimum annual turnover of US$100,000.
As you can see, applying to institutions like the Bank of America is all very well for established businesses. But what if you’re an entrepreneur needing unsecured finance to launch a startup in the U.S.? This is where you’re more likely to secure an unsecured business loan from the alternative finance sector. Here’s what you need to know:
- Look for lenders that are prepared to accept a minimum time in business and that offer annual revenue requirements your startup can meet.
- Decide how you want to receive the loan – in one lump sum payment or on an as-and-when-you-need-it basis.
- Determine the repayment terms and flexibility options.
- Be on the lookout for additional fees.
- Consider the potential lender’s customer support services.
Businesses in the U.S. that have difficulty securing loans can consider applying for an SBA loan.
Applying for Unsecured Business Loans in Australia, South Africa, and the U.K.
The size of the global unsecured business loan market at the end of 2024 was estimated at USD 262.6 million. It is forecast to continue growing at a rate of 10.6% between 2025 and 2034, taking the value from USD 6.06 billion at the end of 2024 to USD 13.23 billion in 2032. The forecast growth is driven primarily by the expanding global SME sector.
Having discussed the options for unsecured business loans in the U.S., let’s now take a quick look at the options in Australia, South Africa, and the U.K.
- Australia: Typical terms for unsecured loans in Australia include loan sizes from $2,000 to $30,000 over 12 months. The 4 most popular sources are lumi, ondeck and Prospa. Each of the 3 offer different terms. Alternative finance platforms for startups include Simply Funds and Westpac.
- South Africa: Typical unsecured loans in South Africa include loans from R10,000 to R5 million over 12 months. 4 of the most popular sources are Bridgement, lula, Merchant Capital, and SME Funding. Some of these platforms also offer startup loans.
- United Kingdom: After the U.S., the city of London in the U.K. has the second-best startup infrastructure of the 4 countries discussed in this blog. There is an abundance of options for unsecured startup loans from digital platforms such as the British Business Bank, CubeFunder, and Tide. Typically, startup loans are available from £500 to £25,000, repayable from 1 to 6 years, and with interest rates starting as low as 6%.
Most countries now have a network of digital business loan tendering platforms available. They are an excellent way of checking out loan availability. You’ll be given 20 or more loan offers based on your requirements from one simple application. You’re not obliged to accept any of the offers you’re presented with, and your credit rating won’t be affected.
