Top Advantages of Unsecured Business Lines of Credit


Jeffrey Bumbales

Many small business owners may find themselves in a position where money is tight. It happens to the best of us.

In these cases, having a business line of credit available can give you peace of mind knowing that those outstanding bills that are due can be paid without penalty. You won’t need to anticipate issues with cash flow to apply for a business line of credit.

Consider it something like an insurance policy: you never have to pay anything until you need it. You’ll know that if you ever come up short one month, you’ll always have the funds available to pay your bills.

What Exactly is a Business Line of Credit?

Every small business needs to have some money on hand to cover a host of expenses. Sometimes you might have it, but other times you might not.

Imagine always having the necessary funds needed to cover last-minute business expenses! A line of credit does just that – it’s there when you need it, and you don’t have to use it or pay interest on it if you don’t.

A business line of credit can be exactly what you need to help fund your day-to-day operating costs and grow your business. You can access the money that you need, whenever you need it.

Although it’s not a credit card, a business line of credit works in a very similar way. But instead, a line of credit has no fixed payments and is usually based on an adjustable market-based interest rate. You can pay the full balance off at any time without having to pay a pre-payment penalty.

How A Business Line of Credit Works

With a line of credit, you are given access to a certain amount of money that is deposited into an account. You can withdraw as little or as much as you need, as long as you don’t exceed the limit.

You are only charged interest on the money you withdraw. If you choose to leave the funds alone, you’ll never have to pay interest at all. But at the same time, you can relax in knowing that the money is available, in case you need it.

Once you’ve put the money back into the account, it’s yours to use again and again.

In What Ways Can a Business Line of Credit Be Used?

A business line of credit is typically used to cover a business’s short-term working capital needs.

Having a business line of credit on hand and readily available when it’s needed can be extremely useful for a number of scenarios, including:

  • Taking advantage of a good opportunity to buy inventory at a low price
  • Off-setting anticipated seasonal dips in sales
  • Paying for repairs at your establishment
  • Paying for seasonal inventory and equipment
  • Covering payroll for employees during slow months
  • Paying for expenses in lieu of using higher-interest credit cards
  • Increasing working capital
  • Growing the business
  • Covering future project costs
  • Evening out cash flow

Understand that a business line of credit should never be used to bail your business out of an ongoing financial dilemma. Instead, it should be used only as a safety net to cover business expenses until your accounts receivables come in.

Business lines of credit are meant to be used for short time periods, paid off, then used again on an as-needed basis.

The Difference Secured and Unsecured Lines of Credit

A business line of credit can be secured or unsecured. The type you apply for will depend on a number pf factors, including your assets and credit health.

Secured Business Lines of Credit

When a lender loans money on a secured basis, this means the loan is secured with some level of collateral such as property or equity in property. If the borrower defaults on the loan, the lender has the right to recover the money owed when the property is sold.

Equity can also be held for a certain amount of time as determined by the lender. A borrower who defaults on the loan will lose all money or collateral deposited.

Unsecured Business Lines of Credit

New businesses that don’t have an established history may have the option of guaranteeing their line of credit using their own personal credit history. Small businesses with an established, healthy credit history are very likely to qualify for an unsecured business line of credit.

But in many cases, even businesses with a short history and a lower-than-average credit score may still be able to qualify for an unsecured line of credit. The amount that a business can qualify for depends on a number of factors, such as revenues, expenses, and years in business.

One of the biggest benefits of having an unsecured line of credit is that you don’t need to put up any collateral in order to secure the loan. Not only can you enjoy the fact that the funds are always available to you when you need it, but the interest rates for unsecured loans tend to be low if your credit score is favorable.

Credibly – Helping Small Businesses Access Business Funding Solutions

If you’re a small business in need of funds to grow and establish your business, Credibly can help.

With years of experience in the world of small business financing, Credibly has all the information you need to understand what options are available to you, and which funding solutions make the most sense for your business.

To pre-qualify for a line of credit or other financing product, fill out our online pre-qualification request form. It’s free and easy and won’t hurt your credit.