Unsecured business loans

Unsecured business loans let you borrow money without the need to secure your loan with an asset (such as your home, car or business assets). This means you’ll borrow money based on your credit score or business revenue – and you won’t risk losing your assets if you default on your payments. Just be prepared to pay higher interest than you would with a secured loan.

How do unsecured business loans in Canada work?

Unsecured business loans let you borrow money without the need for an asset to secure your monthly repayments. Your credit score is used to determine your eligibility to borrow, so you’ll usually need a good to excellent score (660+) to qualify. You may also be eligible to qualify based on how much business revenue you make.

You can expect the following features with unsecured business loans in Canada:

• Interest rates. Usually between 5% and 36%, but you’ll pay more with bad credit
• Amount. Typically between $10,000 and $100,000
• Term. Between 1 and 5 years

Unsecured vs secured business loans

Use this table to compare the main features of secured and unsecured business loans:

What can I use unsecured business loans in Canada for?

You can use unsecured business loans to pay for any business-related expenses you may have. For example, you might use your loan to supplement your cash flow, lease business real estate or expand your inventory. You’ll just need to be able to prove that any expenses you use your loan for are directly related to your business.

Where can I get unsecured business loans in Canada?

You may be able to get unsecured business loans with the following providers in Canada:

• Banks. Bank loans are provided by one of Canada’s Big Five banks or by smaller independent chains. These loans are usually safer than online loans, but tend to come with higher rates and more strict eligibility criteria.
  • Providers include BMO, TD Bank, RBC, CIBC, Scotiabank, HSBC, Canadian Western Bank and National Bank.
• Credit unions. Credit union loans are often more flexible than big bank loans. Just be aware that you’ll likely only be eligible for smaller amounts and you may be required to be a member if you want to borrow from certain credit unions.
  • Providers include Meridian, Servus, Vancity, Connect First, Conexus, First West, Steinbach, Alterna Savings and Coast Capital Savings.
• Private institutions. Online loans are usually less expensive and you may be able to qualify with bad credit. The main downside is that you have a higher chance of borrowing from a predatory or untrustworthy lender.
  • Providers include Loans Canada, SharpShooter, OnDeck, Company Capital, Thinking Capital and Lending Loop.

Pros and cons of unsecured business loans

There are a number of benefits and drawbacks to getting unsecured business loans in Canada

Pros:

• No collateral required. You won’t need to worry about losing your assets if you default on your loan payment.
• Faster turnaround. You can get your loan faster because you won’t need to submit as many supporting documents to verify your assets.
• Options for bad credit. You may still be able to qualify for unsecured business loans with bad credit (but you’ll usually pay much higher interest rates).

Cons:

• Higher rates and fees. You’ll usually pay higher rates and fees since your lender has to take on more risk to lend you money (without assets to secure your payments).
• Amount depends on assets. You can usually only borrow what your assets are worth, which could leave you with less money than you need.
• Lender can repossess your asset. Your lender can repossess and sell off your asset to cover the cost of your loan if you don’t make your payments.

How to compare unsecured business loans

Consider these factors before you apply for an unsecured business loan to get the right fit:

• Loan amount. Look for a lender willing to give you the money you need at a price you can afford. Enlist a cosigner or use collateral to qualify for a higher loan amount.
• Interest rates. Compare 3-4 lenders to find the best interest rates. Low rates usually fall under 12% while high rates range from 15% to 47% on average.
• Loan terms. Choose a term that gives you repayments you can afford. Keep in mind that every year you add will drive up the amount of interest you’ll pay overall.
• Fees. Look at the APR (fees + interest) to determine the total cost of your loan. Keep an eye out for hidden fees, including origination or early repayment fees.
• Repayment options. Negotiate the repayment terms that work best for you. Find out what options are available if you end up struggling to repay your loan.
• Cash availability. Find out if there will be restrictions on how you can spend money. Consider a business credit card or line of credit if you need a steady cash flow.

Can I get unsecured business loans with bad credit?

You may be able to get unsecured business loans with bad credit if your company performs well. Your lender will usually consider factors such as how established your business is, how much revenue you make and whether you have any other business debts. Just prepare yourself to pay much higher interest rates if you apply with bad credit.

Alternative solutions to get a business loan without collateral

Explore these options if you want a different way to access unsecured cash for your business:

1. Merchant cash advance. Get a lump sum of cash and repay the full amount based on a percentage of your business’s credit/debit card sales.
2. Business credit card. Apply for a business credit card to fund smaller business expenses but expect to pay higher interest rates if you hold an outstanding balance.
3. Business line of credit. Choose a line of credit if you want funds to be available when you need them, but only pay interest on what you actually borrow.
4. Outside investors. Pitch your business to angel investors, launch a crowdfunding campaign or ask friends or family for a loan to get the capital you need.

Bottom line

You can apply for unsecured business loans in Canada with no need for collateral. These loans tend to come with higher interest rates than secured loans. You’ll usually need good credit to qualify unless you can prove that your business is well-established and makes a high revenue. Find out more about unsecured business loans, compare lenders and learn how to apply today.

Frequently asked questions

• How much can I borrow with unsecured business loans in Canada?

  It depends on the lender. You may be able to borrow anywhere from $10,000 to $300,000, depending on your credit score, business revenue and other factors. The best way to find out how much you borrow with a business loan in Canada is to get pre-approved by multiple lenders. This will also give you a better idea of how much interest you’ll need to pay.

• Do I need to have a business credit score to apply?

  While it can help to have a well-established business credit score, you may be able to get by with just your personal score. Just be aware that you could be required to sign a personal guarantee for your business loan if you use your personal credit score to qualify. This will make you personally obligated to repay your loan if you default on payments.

• Why was my application rejected?

  Your application may be rejected because you don’t meet the eligibility criteria. For example, you could be denied if you fail to meet age or residency requirements or if you have a low credit score and/or don’t make enough income. It could also be as simple as an incomplete application, so make sure to contact your lender for more information.

• Can I get an unsecured business loan to start a business?

  You may have more trouble getting an unsecured business loan to fund a start-up or new company. This is because many lenders will want to see that you have an established business with a regular stream of revenue before they’ll provide you with financing. Check out your options for funding a new venture in our guide to start-up loans.