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 business line of credit is a loan that business owners can use to tide them over during difficult financial times. Not only are business lines of credit an easy way to borrow money, but they also come with a number of advantages over other forms of financing. To find out which business line of credit is right for you, read on!

How does an unsecured business line of credit work?

An unsecured business line of credit is a form of revolving credit in which you can withdraw funds at any time, as long as the credit limit isn’t exceeded. Interest only accrues on the fund that has been taken out. As a consequence, small-business owners may find a short-term financing option in the form of a business line of credit. A small-business 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 line of credit than on a business 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. Secured lines of credit require that you provide collateral to secure the line.

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

Unsecured vs secured business line of credit- What’s the difference?

There is a big difference between an unsecured and a secured business line of credit. With a secured business 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 business line of credit, 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  • Interest only accrues on withdrawn funds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 credit card

Cons

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

Business credit cards vs business lines of credit

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

Business credit cards 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.

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

FAQ

What are the interest rates for a business line of credit?

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

Are there any risks associated with taking out a business line of credit?

  • Only if a default occurs. For instance, on a secured business line of credit, the asset collateralized by the loan risks forfeiture. In most cases, liens are filed against the asset. An unsecured business 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 on your credit.

What are the benefits of getting an unsecured business line of credit?

The benefits of getting a business line of credit include:

  • 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 a business line of credit fast

Banks, credit unions, and online platforms all provide business lines of credit. Be sure to look at loan amounts, interest rates, collateral requirements, loan terms, and lending fees when comparing online business line of credit options. Since most online companies like AMP Advance are private, they are more risk tolerant with low credit 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 business in order to obtain a business line of credit. AMP Advance has the fastest way to get approval for a business line of credit, we only require an application and business bank statements.

Conclusion

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

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Business Funding Solutions