A business line of credit is a loan in the form of revolving capital. That means as you pay back your loan or line of credit, you can immediately borrow from it again. Another word for this is an open-end credit account.
Business lines of credit can be secured with collateral but are often unsecured. And with a 73% approval rate, an unsecured business line of credit has become one of the most popular alternative business lending options.
Typically, small businesses pay interest on the entire balance of a traditional business loan. With either an unsecured line of credit or a secured line of credit, there are no predetermined average loan payment terms. Similar to a credit card, you will be given a limit and only pay interest on the amount withdrawn from the line, instead of the entire limit. Unsecured business line of credit funds can be arranged by banks, credit unions, and other types of lenders. They’re extremely popular funding sources for many businesses in the United States.
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There are two primary types of business lines of credit:
1. Unsecured : An unsecured business credit line does not require collateral . This means you won’t need to secure your borrowing against an asset. However, you may need to pay higher annual percentage rates as lenders are taking on more risk.
2. Secured : A secured business line of credit is collateralized with an asset, such as a commercial property or expensive machinery. A secured line of credit poses less risk to lenders, as they can seize your asset to pay any defaults.
If your business is not in a position to put up collateral, you may be looking for an unsecured line of credit.
A personal guarantee allows a business owner to use their personal credit score to secure funding if the business credit score is not high enough. However, lenders still offer business lines of credit without personal guarantee, they simply require more paperwork.
If you’re comparing an unsecured business line of credit to other types of small business financing, such as inventory loans, it’s essential to understand the benefits of each option. An unsecured line of credit gives you:
While an unsecured line of credit may be the solution to your immediate cash needs, a secured line of credit offers you a wider range of lending options. You’re also able to borrow a larger amount with a secured line of credit.
The most common reason to open a secured or unsecured business line of credit is to help with short term funding. Cyclical businesses rely on this funding type as a way to get continuous working capital. And unlike other small business loans, an unsecured line of credit isn’t used for a specific reason or a certain type of purchase, it covers all business expenses.
The 10 best ways on how to use line of credit funding are on:
One of the best aspects of this funding solution is that there are still plenty of opportunities for line of credit loans for bad credit as well. If you’re struggling with a bad business credit score, this might actually help you build it.
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If you think a business line of credit will meet your financial needs all you need to do is make sure you have your financial information ready and apply! Our trusted capital partner, Wisco Capital, helps you from beginning to end with hands-on assistance through their simple and quick application process.
If you’re ready to get the secured or unsecured line of credit you need, apply with our trusted capital partner in as little as 5 minutes.