I’m Interested In A Line of Credit. Do I Qualify For A Unsecured Business Line Of Credit?
Most people think that a unsecured business line of credit is just like a regular business loans. However, they’re are very different. A regular business loan is dispersed in a single deposit. A business line of credit allows you to draw from it for business-related expenses. You can use it for things like inventory or payroll.
A business line of credit usually requires collateral. However, unsecured lines of credit don’t require you to offer any collateral to your lender. Because you aren’t offering assets against the loan, lenders may consider them riskier and apply strict approval guidelines.
Keep in mind that eligibility requirements vary by lender. You may need to meet certain lending criteria like a specific business credit score and annual revenue.
What Is An Unsecured Business Line of Credit?
An unsecured business line of credit functions like a business credit card. Businesses can use the funds made available through a line of credit as needed.
Both online lenders and traditional banks extend lines of credit, with borrowing limits ranging from $2,000 to over $250,000.
Some commercial lenders do both kinds of business lines of credit. In other words, they may do both secured or unsecured lines of credit.
However, secured lines of credit are backed by collateral. Like a mortgage on your home. If you don’t pay, the lender can seize the collateral. Whereas, unsecured lines are not backed by any type of collateral.
In other words, a secured line of credit may require you to put up tangible assets as collateral. Tangible assets include real estate or equipment against the loan. Whereas, an unsecured loan doesn’t.
Some lenders may require that you take the extra step. This step is signing a personal guarantee when you receive an unsecured business line of credit. A personal guarantee means that you will be personally liable for the company’s debt if the line of credit is not repaid. Many lenders require a personal guarantee for all unsecured loans. However, others may require it if there are concerns about your business’s age or financial stability.
If your application is ultimately approved, you’ll be issued a credit limit and can begin borrowing money as needed for a certain time period. During the approved borrowing period, you can withdraw as much or as little of the line of credit as you need for your business. Withdrawals might be made through an app, a card or a checking account.
Repayment terms associated with business lines of credit vary, but you typically repay what you owe in monthly or weekly installments.
