There are a couple of different types of lines of credit in business, and most business owners would prefer to have an unsecured business line of credit since it does not involve the requirement of collateral to secure it. There is no question that a revolving line of credit can be highly advantageous to your business, but in many cases, business owners simply don’t have valuable assets which can be used as collateral.
Details of an Unsecured Line of Credit
Like other lines of credit, an unsecured line of credit provides you with the cash you need indefinitely, as long as you continue to pay on the outstanding balance each month. The drawback to an unsecured line of credit is that it will generally have higher rates applied because there’s no collateral involved. It will generally also involve shorter repayment terms, and you’ll probably also have a lower credit limit extended to you.
In most cases, lenders are less willing to offer unsecured lines of credit, because it’s riskier for them. In order to counterbalance that risk, lenders will generally only make available an unsecured line of credit to a company which has demonstrated consistency and responsibility over a period of several years, so they can reasonably expect to have their money repaid to them.
Who Qualifies for an Unsecured Line of Credit?
Lenders are generally reluctant to extend unsecured lines of credit to businesses, simply because there’s no collateral involved which they might seize in the event of defaulting on the loan. Even though the company which qualifies for an unsecured line of credit is less likely to default, there’s still a strong risk that a lender might be left holding the bag.
As a result, only those companies which have high annual revenues, as well as an impressive business credit score, will likely be considered eligible for an unsecured line of credit. By and large, you’re much likelier to be qualified for a secured line of credit which involves putting up collateral to support your application.
Interested in an Unsecured Business Line of Credit?
Almost every small business could profit from having an unsecured business line of credit if they can qualify for it. Contact us at Proactive Funding Solutions to find out if your business is eligible for all the advantages that lines of credit can bring to your business.