Unsecured Business Line of Credit
Need continual access to capital? It’s not for everyone, but perhaps an Unsecured Business Line of Credit maybe perfect for you.
As we all know, lack of working capital can kill a business. At a minimum, it can cause a lot of stress when having to manage tight cash flow. This is the exact problem what a Unsecured Business Line of Credit can solve.
A line of credit can provide money for paying bills or growing the business. When used correctly, it can serve as an excellent financial tool for businesses. Here's everything you need to know about unsecured business lines of credit and most importantly, how to get one.
What is an unsecured business line of credit?
An unsecured business line of credit provides borrowers (businesses) with access to a certain amount of cash. You withdraw the amount you need, only paying interest or fees on the amount you actually use, and you pay it back according to specific terms.
In most cases, you can withdraw and pay back the cash on a rotational basis, using the line of credit to help fund ongoing business needs.
New business and well-established business options:
The requirements for applying for a traditional unsecured line of credit is often stringent: they typically require the business to have been in existence for a certain number of years and have met a minimum sales number from the previous year. Usually 2+ years in business, strong credit profile and $200,000+ in annual sales.
A line of credit has been traditionally provided by banks to strong businesses as there is a lot of trust due to no collateral being required.
Today’s market has changed with several non-bank lenders stepping in to the market. With Lenders such as Headway Capital or BlueVine, the market has opened up to businesses that may not have perfect credit and need money quickly. Their rates maybe a little higher, but they move a lot quicker and are definitely a lot quicker. Funds can usually be available within 24-48 hours compared to 2-6 weeks from the traditional banks.
What about New Businesses?
The most common question any lender receives is “Do you lend to new businesses?” A new business is either a pre-revenue, or early stage. Typically operating for less than 2 years. Almost all banks won’t lend to a business that has been operational for less than 2 years, this is their simple requirement.
Seek Capital has created an innovative suite of products that allow new business owners to access a line of credit facility via Unsecured Credit Cards with Line of Credit Capability.
Most people don’t realize, but a business credit card is actually a form of line of credit. A business credit card can be used, repaid and used again, this is the true definition of a ‘line of credit’.
Seek Capital provide new business owners the ability to obtain funding via credit cards, ranging from $10,000 up to $150,000 with introductory rates of 0% APR, typically for ther first 12 months. What makes the program very popular is the ability to make purchases with the credit card to vendors who typically don’t accept credit cards, and this includes payroll! This is why the product is so popular for new businesses.
How does an unsecured business line of credit work?
When you apply for an unsecured business line of credit, the lender decides whether or not they'll provide the credit and how much the total line will be. Once your business line of credit is approved, then you have access to withdraw funds as you need them for business expenses. Note that most lenders do specify that the funds must be used within any scope you stated in your application, which means you can't use them for personal expenses.
If your unsecured business line of credit is for $5,000, then you have access to that much total but you don't have to borrow all of it. You might use $2,000 to purchase new computer equipment for the office; that leaves you with $3,000 in available credit.
As you pay back the $2,000, your available credit increases again. If you've already paid back $500, then you have $3,500 available. You might take out another $1,000 to cover another business need, leaving you with $2,500 in available credit.
The good thing about an unsecured business line of credit is that you are in charge of how much you withdraw, so you can keep fees and interest down while better managing your cash flow.
What's the difference between a secured and unsecured line of credit?
A secure line of credit involves collateral, which means if the business can't pay the loan back, the lender can seize the assets used for collateral. That could be business equipment or property, but some small business owners use personal property such as their home for collateral.
What's the difference between a loan and a line of credit?
With a term loan, the borrower is required to pay it back, in full, within a fixed amount of time and typically with a fixed interest rate. So business owner who takes out a $5,000 term loan gets the money in a lump sum, and then they make monthly payments from that point forward to pay it back.
A line of credit behaves more like a credit card: you're given a maximum credit amount, and you can borrow against that money as you need to. It helps finance ongoing operating expenses without locking you into a single, long-term loan.
How do payments work on an unsecured business line of credit?
While traditional business loans require fixed monthly payments, the payment options for an unsecured business line of credit are often more flexible. Each month, borrowers can choose to pay the full amount they owe, pay the minimum payment or pay a bit more than the minimum monthly payment — very similar to a credit card. These options are beneficial for a small or growing business, because it lets you repay debt at a schedule that fits your monthly operating budget.
It's important to make payments on time when repaying an unsecured line of credit. When business make timely payments, it can positively impact credit scores and avoid additional costly late fees and interest charges. A stronger credit score means future loan terms could be more favorable.
How can you use an unsecured line of credit for business?
The options are plentiful when it comes to how an unsecured line of credit could be used for a business. In general, lines of credit are better for short-term, smaller or more frequent purchases — especially if you just need to fund the purchase until payments come in from clients. Common uses include:
What do you need to get an unsecured line of credit?
The best time to apply for an unsecured line of credit for your business is before you actually need it. This puts you in a better financial position when the time comes that you do need the extra cash.
When you apply for one, here are some things the lender may ask for:
Line of Credit in Summary:
A line of credit is issued from a lending institution (bank, credit union, non-bank lender) and provides a borrower with a maximum dollar amount to which they can access as needed. The borrower can use as much or as little as the funds so long as the maximum pre-set amount is not exceeded.
The key advantage of a line of credit is that an interest rate is charged on the amount of funds used, not the total availability of the line. A line of credit is perfect for businesses that have unpredictable expense patterns and need additional capital to cover short-term expenses. A line of credit will commonly have a small monthly minimum payment required to ensure the borrower is in good standing and continually making some payments back to the lender.
Take a moment to speak to our funding specialists and find out if a Line of Credit can help your business.