Things To Know About an Unsecured Business Line of Credit
It is quite often the case that businesses will need readily available capital. One of the most convenient types of capital available is an unsecured business line of credit.
The Basics of an Unsecured Business Line of Credit
These types of lines of credit offer businesses a set amount that they can borrow. Because this is an unsecured line, there is no need to put up collateral to receive the line of credit.
Businesses can access the line on an as-needed basis. It can often save businesses money compared to a standard loan, where they may borrow more than needed and end up paying for money they do not need.
Interest rates on a line of credit are often lower than a traditional loan. The flip side is that if you are late on your payments on a line of credit, the interest rates can go through the roof compared to a more traditional loan.
Alternatives Lenders May Ask for Instead of Collateral
When a business is not going to put up any collateral for lines of credit, lenders will often want a personal guarantee for the line. When a business owner puts up a personal guarantee, they act as a cosigner on the line. That means, in practical terms, that if the line does not get paid back promptly, the individual shares responsibility for repayment instead of just the business.
Some of the Reasons an Unsecured Business Line of Credit Can Be a Good Idea
For those businesses that have been in business for a while and have a good credit rating, it is generally relatively easy to open a line of credit at an affordable rate. A line of credit can be valuable because it can give a business easy access to cash to cover unforeseen expenses or take advantage of opportunities requiring capital.
Having a line of credit provides a business with a safety net since there is capital available even when the business does not need the money. A business line of credit can also improve the company’s creditworthiness since this financing gets reported to business credit bureaus.
Unsecured business lines of credit offer the flexibility of getting cash when the business needs it without providing collateral to receive the line of credit. Having an unsecured business line of credit has very little downside to a business yet offers a wealth of amazing benefits for any business.