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Unsecured Business Lines Of Credit: Tips How Credit Lines Work  Small Business Videos RSS Feed  


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 history. 

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 security.

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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