If you’re a small business owner in need of financing, an unsecured business line of credit could be the ideal solution. This type of financing doesn’t require any assets to be put up as collateral and may appeal to startups or those with less-than-perfect credit histories.
Furthermore, unsecured business lines of credit are more accessible and straightforward to acquire than secured ones. Unsecured financing is swifter and simpler to understand, meaning it can help you reach your financial objectives faster.
An unsecured business line of credit is a revolving loan that permits you to borrow up to a specified amount (known as your credit limit) and draw from it whenever needed. This type of financing is popular among small businesses since it provides flexible access to working capital for unexpected expenses or other short-term needs.
Any business can benefit from this option, particularly when cash flow is unpredictable and extra funds are necessary to stay afloat. Furthermore, it provides your business with the security net it needs in case any unexpected expenses or cash-flow problems arise in the future.
Unsecured financing differs from secured loans in that it poses less risk to lenders and more risk to borrowers since no collateral is required. Furthermore, unsecured financing often carries higher interest rates, so you must weigh these factors when determining which type of financing works best for your business.
Lower Interest Rates
Unsecured business lines of credit offer lower interest rates than traditional bank lines of credit, which can be an attractive option for businesses searching for low-cost funding. However, you should carefully weigh your options before settling on one unsecured business line as it may not be the best fit for your company’s needs.
When applying for a business line of credit, factors like the size and risk you pose to lenders determine your rate. If you’re just starting out or have had bad credit in the past, it could be challenging to be approved for an unsecured line with today’s challenging economic climate.
Thankfully, online lenders have entered the small business lending space to offer an affordable, lower-interest option for slightly less qualified borrowers. These lenders tend to be more accommodating and less likely to require physical collateral as well as charge additional fees like annual or inactivity charges.
No Collateral Required
If you need short-term financing without the hassle of pledging assets, an unsecured business line of credit is a viable option. With this revolving credit line, you can withdraw funds up to a set cap and the money will automatically be added back into your account once it’s been repaid.
Secured business lines of credit require you to pledge assets that a lender can sell if you default on the loan. This can be particularly challenging for smaller businesses with less-than-perfect credit histories or those looking for large funding amounts.
Unsecured financing can be more risky for lenders since no collateral is needed. Therefore, they tend to be stricter during their underwriting process and only approve applications when they feel comfortable with the potential risk. As a result, unsecured lines of credit tend to be costlier and harder to qualify for than secured options.
Easy Application Process
Applying for an unsecured business line of credit is a straightforward process, and most online lenders provide funding within just one day. Banks typically take weeks to process applications for these lines of credit, but online options provide you with a small-business credit line within just one day!
Before applying for an unsecured business line of credit, first determine how much funding you require and when. Secondly, assess your business’ qualifications (years in operation, annual revenue, personal credit score) to find the most suitable lender.
Depending on the lender, lenders require financial statements and tax returns covering at least two years. Furthermore, lenders expect you to have an open business bank account with positive cash flow.
Your experience as a business owner is important to many lenders, as it demonstrates that you have demonstrated your worth in the world of commerce and are less likely to default on loans. This is especially true if you’ve been established for some time and have built up an impressive credit history.