What Is Unsecured Business Line Of Credit?

What Is Unsecured Business Line Of Credit?

An unsecured business line of credit is a financing option that enables you to access funds without providing any type of collateral. Since the credit is not secured by collateral it’s often featured by shorter repayment terms and higher interest rates than its secured alternative.

An unsecured business line of credit provides business owners with the necessary amount of funds they can easily draw, up to a certain limit.

Some business line of credit allows you to get access to the funds you pay back. These types of credit are known as revolving LOC because the funds you repay immediately becomes available.

Unsecured business lines are ideal for business owners with limited personal assets, foreclosure, and fewer business assets.


What Is An Unsecured Revolving Line Of Credit?

The unsecured revolving business line of credit is a form of a business line of credit that allows you to access a certain limit of funds which is immediately put back into your line of credit once the repayment of the initial funds is done.

See the example below to understand better how an unsecured revolving business line of credit works for a business owner.

  • Say, you receive a set capital of an unsecured revolving business line of credit.
  • You have access to any amount you need for your business to a set maximum limit. For example, the amount could be anywhere between $100,000 to $5M depending on your lender and your business status.
  • You have the freedom to withdraw funds as you need them without having to apply for approval each time you apply.
  • Once you have withdrawn the amount you needed from your unsecured credit line, you’re only required to repay that exact amount which becomes available again for you to use.
  • For instance, if your credit maximum is $200,000 and you only take out $20,000 you’re only needed to pay back that $20K. Based on your unique payment cycle you qualify for. This is the main difference between unsecured business loans and unsecured business lines of credit.
  • Once you pay back the borrowed funds they immediately become available in your line of credit. For example, if you withdraw $20K from your credit line, you’ll remain with $180K which is still available for you to use. And after repaying the $20K, it’s added back to your balance to make it $200k again.

What Are The Pros Of Unsecured Business Loans?

The fast and simple application process is among the most common benefits of unsecured credit lines. Additionally, getting funds without putting up collateral makes the unsecured financing options less risky for business owners while building their credit history after repaying the loan.

Most business startups prefer unsecured lines of credit because they don’t have to surrender the rights to their business and personal assets. So they’re sure not to lose their homes or any of their properties just in case anything goes south with their business. Of course the cost would be higher and as well as a more in-depth review and approval process to lessen the risk exposure to the lender.

Since an unsecured business line of credit does not require any collateral, the whole process is quick and easy for business owners to access the capital needed immediately without any hurdles of paperwork, but would require the business to be stronger in the areas being evaluated for approval.

Is Unsecured Business Line of Credit Better Than Other Options?

If you need a financing option that does not need you to put up any collaterals or as a business owner you prefer not to put your assets, then this is your ideal financing option. Also, you only pay the interest of the amount you used not the whole amount available in your line of credit.

A business line of Credit gives you the ultimate flexibility to acquire a large lump of cash, and use what you need and when you need it. You can use the funds for payrolls, cater for emergency business expenses, and more.

However, if this option is not viable for you, you can always use an alternative financing that is more compatible with your business needs. Because the best financing options depend on various factors. Always work with a funding advisor that can help you get the best option that is in line with your business goals.

What Is The Best Type Of Unsecured Business Line Of Credit?

There are two major types of unsecured business lines of credit for business owners seeking financial support. They are; Traditional and alternative. So how do you determine the best type for your business?

Traditional Unsecured Business Line of Credit

This’s unsecured line of credit that is issued by a bank typically, banks are known for being conservative when lending with strict requirements and detailed documentation from business owners.

Then you’ll be required to have annual financial review to maintain the line of credit once it has been issued. Most business owners find it hard to get approved and maintain the traditional business lines of credit. Apart from requiring your business to have a stable cash flow, the credit takes many weeks to months to become available. However, they come with several benefits like lower interest rates and longer repayment terms.

Alternative Unsecured Business Line Of Credits

The alternative unsecured business LOC is a line of credit offered by alternative lenders. Financial institutions that are not banks normally offer a line of credit with fewer restrictions than conventional banks.

While banks have low approval rates, alternative financiers approve businesses up to 95% of total applications. This’s possible because, unlike traditional banks that look for high credit scores and high-value assets, alternative financiers look for the potential of your business to grow.

If you need flexible, fast, and convenient unsecured business lines of credit with fast approval within 24 hours and funding in as fast as 2-3 days, consider working with an alternative financier.