Best Unsecured Business Line of Credit: What are the Benefits?

Do you have a short-term capital need? If so, you may want to consider getting the best unsecured business line of credit. A small BLOC is a loan that companies can use to tide them over during difficult financial times. Not only are they an easy way to borrow money, but they also come with a number of advantages over other forms of financing. To find out which one is right for you, read on!

How does a business line of credit work?

It’s a form of revolving credit in which you can withdraw funds at any time, as long as the limit isn’t exceeded. Interest only accrues on the fund that has been taken out. As a consequence, owners may find a short-term financing option in the form of a BLOC. A loan, on the other hand, is a cash sum with a set interest rate that is paid back in set monthly installments.

Loan payments start immediately, whether a business uses the money right away or not. Borrowing limits are often lower on a LOC than on a loan, typically ranging from $5,000 to $150,000. However, some lenders offer secured lines of credit, which offer higher limits of up to $3 million.

Additionally, loans are typically limited to predetermined uses, like purchasing new equipment, while LOCs are more flexible, allowing you to use the money for whatever you choose.

Secured Vs. An Unsecured business line of credit- What’s the difference?

There is a big difference between unsecured and secured credit. With a secured line of credit, you would have to put up qualified collateral like real estate, inventory, and or account receivables to secure the loan. Generally, this is required for larger loan amounts over $250K. In case of default, this also means that the lender has to seize the asset, in most cases a lien is filed once the line is funded.

On the other hand, for an unsecured, you do NOT have to put up collateral. So if you’re thinking about borrowing money against your company’s assets, make sure to ask about the security options available to you.

Pros

• Can be helpful if you have short-term financing needs
• Interest only accrues on withdrawn funds
• Fast access to cash, unlike a card

Cons

• Unsecured BLOCs can be more expensive than a secured loan due to the risk
• You may have to repay the loan in full, at the lender’s discretion. Typically this happens when the loan or merchant is not in good standing
• For a secured BLOC, your assets will be encumbered

Business credit cards vs lOCs

Traditional company cards are technically lines of credit but differ in a number of ways from conventional lines of credit. A credit card usually will have higher limits and does not require collateral. A BLOC may be secured or unsecured. Merchants may have the option to withdraw cash, however, you’ll pay a higher APR and fees (commonly known as a merchant cash advance fee) to do so. Traditional lines, on the other hand, do not provide rewards or cash back for spending but cards, on the other hand, do. Expenses, such as office supplies, gasoline, internet, and cable are frequently used to provide cash-back incentives.

They may also offer 0% interest promotions, which allow you to pay no interest on your balance for a specific time period after signing up for the card.

Credit cards work best for smaller ongoing expenses and for newer businesses without established finances, while BLOCs work best for larger ongoing expenses and more mature companies. To qualify for business credit, strong personal credit would be required such as a 650+ FICO or better.

What are the Typical interest rates?

Rates vary from lender to lender and range from 6% to 35% annually. Rates are contingent upon the creditworthiness of the borrower and the cash flow of the merchant.

Are there any risks associated with taking out a BLOC?

• Only if a default occurs. For instance, the asset collateralized by the loan risks forfeiture. In most cases, liens are filed against the asset. An unsecured line of credit typically requires a personal guarantee, so a default could impact your personal credit and in some cases, wage garnishment or judgments may be filed against your personal name.
• Some lenders require a hard inquiry to apply. AMP Advance only pulls soft inquiries so there is no impact.

What are the benefits?

• Extra cash flow to manage your liabilities
• Manage seasonal fluctuations.
• Short-term needs like covering payroll or maintenance on equipment
• Cover cashflow gaps while you wait for payment from your customers
• Fast access to cash on demand

How to get an Unsecured business line of credit fast

Banks, credit unions, and online platforms all provide BLOCs. Be sure to look at loan amounts, interest rates, collateral requirements, loan terms, and lending fees when comparing options. Since most online companies like AMP Advance are private, they are more risk tolerant with low scores than big banks. However, loan limits may be lower. For large loan amounts requested, you may be required to submit with your application, bank statements, financial statements such as profit & loss or balance sheet, and tax returns for your personal and company in order to obtain one. AMP Advance has the fastest way to get approval, we only require an application and merchant bank statements.

In Closing…

Now that you know everything you need to know, it’s time to decide which one is best for you. So, what are you waiting for? Get the best business line of credit today and start growing your company!