Unsecured Business Lines Of
Credit: Tips How Credit Lines Work
Unsecured business credit or unsecured business lines of credit, is an
option that is available to small business owners. As small business owners, they are sometimes faced with the
challenge of paying off their creditors or maybe even expanding their business. An unsecured line of credit
requires no collateral. However, unsecured loans do come with higher interest rates. Since the bank has no
collateral or assets in reserve, they must charge higher interest rates to assure their protection.
When the credit line is unsecured, the business owner has to personally guarantee
that the credit line will be paid. It is basically a signature loan made on behalf of your corporation or company.
The business lines of credit can be secured or unsecured. It's smart, convenient and even better it can serve
as a valuable financial tool for your company.
Most lenders require a "good" rating on your FICO score, no bad marks on your credit
history, and most lenders do require that you have been in business for at least 2 years. Therefore, the
unsecured business loan works best for established business borrowers with excellent credit
For new businesses however, most lenders may require business owner
to provide some sort of collateral to secure the loan. Keep in mind, account that pledging high valuable collateral
will privilege you in getting your desired amount. The most common forms of collateral that are typically
considered are equity in your home, accounts receivables, shares of stock in the business, equipment, real
estate owned by the company including land and buildings, inventory of the business also work well as a
A secured loan is usually considered to be a lower risk and so the interest rate will
typically be lower than in the case of an unsecured loan. Generally, lenders will lend unsecured business
lines of credit ranging in the value of $10,000 to $50,000. Credit line over $50,000 usually the lender
will require additional financial documentation.
You can set up a fixed payment schedule to include principal and interest (blended
payment), pay interest only on a monthly basis with principal payments at your discretion, or have the principal
payments scheduled for your budgeting ease. Choose a payment schedule that best suits your needs. They come
with variable interest rates and multiple repayment options. Personal guarantees are required from all principals
who have 33% ownership interest or more.
All in all, an unsecured line of credit can be a valuable resource to the new business
owner. Used wisely, the money made available through this unique form of business financing can help grow a
fledgling business exponentially.
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