How long does it take to receive an unsecured business loan?

An unsecured business loan is a loan that isn’t backed by collateral as a security for repaying the loan. Getting approved for an unsecured business loan typically takes one to seven business days with most lenders, though traditional banks can take longer in some cases.

The advantage to this type of loan is that lenders can’t immediately take valuable business assets to cover their losses if you miss repayments. But expect to provide plenty of documentation to prove that your business is in solid financial standing.

Let’s look at how long it takes to get an unsecured business loan from beginning to end — and the steps involved to get there.

Time to funding for different types of unsecured business loans

Common types of unsecured business loans include term loans, business lines of credit, invoice factoring and merchant cash advances. Each one will have different funding timelines due to the different underwriting processes for each type, ranging from a day to several days or weeks.

• Term loans: Provide a lump sum of money with fixed monthly payments, typically spanning 12 months to seven years. Most term loans will take at least two or three days to get approved, but it can take several weeks if you’re getting a large loan or going through a traditional bank.
• Business lines of credit: Ideal for managing unpredictable expenses or cash flow fluctuations as they often offer access to a flexible credit line on an as-needed basis. Many lines of credit from online lenders can take 24 hours or less to get approved, but you should still expect a week or more from traditional banks.
• Invoice factoring: Involves selling unpaid invoices to an invoice factoring company for immediate cash, easing cash flow problems. This type of financing usually takes about a week to deposit funds due to credit checks and verifying the creditworthiness of your clients.
• Merchant cash advances: Businesses get funding based on credit and debit card sales, making this option ideal for quick, small purchases or immediate expenses. You’ll typically see funds in as little as two or three days.

Factors that impact how soon you can get an unsecured business loan

How long it takes to get an unsecured business loan depends on the lender’s application and approval process. That process can include the amount of documentation you need and whether it approves loans manually or by using software.

The application

The bank’s documentation requirements and the methods available to apply determine the length of the application process. Traditional banks often offer applications in person or by phone so that you can work out your needs personally with a relationship banker.

You’ll need to set aside several hours to fill out the application and keep the required documentation handy for a smooth process.

On the flipside, online lenders specialize in streamlined online applications that you can fill out in minutes. They may move to the underwriting process within a few hours.

The underwriting process

Underwriting is the process in which your lender does the heavy lifting to evaluate your business’s creditworthiness and the amount of risk toward repaying the loan. It also determines the conditions for extending the loan, such as the down payment or collateral required. An unsecured business loan doesn’t require you to use business assets as collateral.

Lenders use two different methods to figure out your credit risk: manual underwriting or credit scoring models.

Manual underwriting

Manual underwriting uses a person to review the loan application, which can take up to several weeks. The benefit is that the underwriter can take subjective factors into account for approvals, such as a business owner’s character.

The underwriter will review the loan application as well as the following:

1. Check your personal and business credit score.
2. Evaluate financial statements, balance sheet and business plan to show how your business will repay the loan.
3. Determine how much risk the lender can take on.
4. Give recommendations to approve or deny the loan.

Credit scoring software

Credit scoring models use software to assess a business’s financial statements and make calculations. Fintech lenders rely heavily on software and may also use it to pull alternative credit scoring data.

This allows fintechs to approve businesses like startups and bad-credit borrowers that are deemed a high risk by traditional lenders. As you can imagine, using technology speeds up underwriting significantly, with approvals in as little as 24 to 72 hours.

Examples of banks that offer unsecured business loans

Most banks offer unsecured business loans with low interest rates, including business lines of credit, term loans or working capital loans. See what loan features are offered by top banks:

Examples of online lenders that offer unsecured business loans

Online lenders may specialize in one or more types of unsecured business loans, so you won’t see a uniform selection across all of these lenders. Examples of what you might find:

Bottom line

Because every lender uses its preferred underwriting process, funding speeds are different from lender to lender. Most lenders can provide funding in one to seven business days, although online lenders often streamline loan approvals. Keep in mind that, even with the best unsecured business loan, the lender may reach out for additional information to prove your creditworthiness. This can increase the time to get funding.

Frequently asked questions

• What do underwriters look for in business loans?

  Underwriters are essentially evaluating your business to determine whether it can repay the loan. It looks at a variety of factors, including:

  • Cash flow shown through accounts receivable and payable
  • Credit history
  • Business assets and liabilities
  • Growth potential
  • Industry risk of failure

• What are fintech lenders?

  Fintech lenders are technology companies that rely on software and alternative data to evaluate a borrower’s creditworthiness. Fintechs are non-bank institutions, which means that they don’t hold bank deposits or issue banking products themselves. Instead, they partner with traditional banks to offer loans.
  

• Is it hard to get an unsecured small business loan?

  The difficulty of getting approved for an unsecured business loan depends on your credit history and financial statements. Lenders often look for strong revenue, a strong credit score in the 600s and at least one to two years in business. If you’re a new business or have subprime credit, you stand a better chance of getting a business loan through an online lender than a traditional bank.