Term Business Loan

Unsecured Lines of Credit: What you Need to Know

In the world of business financing, unsecured lines of credit are an adaptable reserve you can use to meet professional financial obligations. You are not required to back the loaned funds with any type of asset value. A pre-set annual fee is charged in place of collateral. This rate varies by credit provider. The annual fee is often waived the first year your account is active. These are just some of the basic terms. In order to make an informed decision when it comes to credit, you have to look at all the factors involved.

On the Plus Side

Unsecured lines of credit are unrestricted. You can access money when you need it and pay it back at the rate you choose. Accessing the funds is simple, just a check.

Look at the credit line like an interest-free credit card that comes in paper instead of plastic. Pay off the balance and the credit is there any time you need it. Making the credit line reusable eliminates the hassles of re-applying for unsecured funding. The interest rate depends on the lender, but many business owners prefer a credit line to a credit card because the rate is more cost-effective.

And Now for the Minuses

Unsecured lines of credit may be easy to access repeatedly, but the limits are smaller than other forms of unsecured lending. This safeguards the lender against the risk of default. Since there is no collateral to guarantee the loan, keeping the balance owed to an acceptable limit acts as damage control if the money is not paid back.

Falling into habitual debt is always a risk, so weigh it carefully. Continually borrowing against future revenue will run your business into the ground. Educate yourself and stay accountable so you can keep your spending habits in check.

The ABC’s of Eligibility

Certain criterion needs to be met in order for businesses to qualify for unsecured lines of credit.

Here are the basics:

• Have a previously established credit history on record with the Small Business Financial Exchange, but don’t have too many active credit lines; that will affect the qualification process.

• A credit score of 660 or higher, just in case it’s necessary.

• Make sure you’ve been in business at least 6 months, if not two years (depending on the lending requirements).

• Proof of payment capability- credit limits are based on annual revenue.

• Evidence of payment schedule adherence for any open credit lines.

Lenders can deny an applicant based on your debt-to-income ratio. If you are denied, ask about options like minimum credit. In the meantime, review your credit report quarterly and work to improve your rating before re-applying. Read the lending terms completely before signing any agreements.

If your business could benefit from a loan, but you don’t want to wade through applications, consider the renewable resources of unsecured lines of credit. They could be the cost-effective solution you’ve been looking for. Apply today and start planning for the future.

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