Unsecured Business Credit Line – Is It Right For Your Business?
November 3, 2021
Many small business owners opt to apply for an unsecured business credit line and other unsecured business loans to finance their businesses. There are many advantages to obtaining this type of financing, but also several disadvantages. If you are considering this financing option, take the time to consider the pros and cons of your decision.
Many small businesses that obtain unsecured business credit lines do so for various reasons. First, unsecured funding is often less expensive. When you pay back the loan, capital will be added back to your business financing line, allowing you the freedom to withdraw funds anytime you like.
In many cases, you can have this type of option along with your bank financing option, which allows for easier comparison shopping. Most banks allow small businesses to obtain both unsecured credit lines and bank financing. This is because it makes good business sense for banks to provide small businesses with as much access to capital as possible.
Another reason small business owners choose unsecured business credit line is that they offer a flexible financing method. Unsecured loans and credit cards are generally offered at very high-interest rates. By contrast, unsecured business credit lines are offered at relatively lower interest rates. Because they carry a lower interest rate than most traditional loans, there is no reason not to choose this option when thinking about business financing.
The final reason small businesses choose unsecured business credit lines is that they are readily available. Unlike secured financing, small businesses do not need to put up collateral to obtain unsecured loans. Secured credit lines require the business to have collateral to qualify for the loan. This collateral can be in the form of real estate or vehicles or even cash. If you do not have collateral, unsecured loans are a great alternative for financing small businesses.
As previously mentioned, there are several ways to obtain an unsecured business credit line. Some of these options include working with a private lender who specializes in providing this type of financing. You could also use your local bank or credit union. Even if you do not qualify for a line of this type, there are other ways to get the money you need for your business. These include seeking out an angel investor or obtaining a funding source such as a Small Business Association loan.
One of the advantages of an unsecured business credit line is that you will not have to put up collateral to secure the money you need. This means you will be able to obtain the money you need at a lower interest rate than you would if you were to obtain a secured business loan.
However, an unsecured line of credit does come with some risks. One of the risks is that the lender will assess the value of your collateral when you apply for financing. The lender may decide that your collateral is not worth the amount of money you need to borrow. The lender may also deny your application if the value of your collateral is greater than the amount you need to borrow.