When it comes time for businesses to borrow money, there are lots of options available. Borrowers can visit a bank for a conventional fixed or variable-rate loan, turn to payday lenders and pawnshops (though neither is a good idea apart from the most dire of situations), use credit cards, borrow from friends or family, or even turn to the online social lending websites.
No Security Or Collateral Required
This is possibly one of the most important advantages of this type of business credit. It is true that many small businesses aren’t capable to offer collateral which are in particular asked to acquire loans, isolate physical assets required by lots of lenders. Unsecured lines of credit do not ask for small business owners to pledge any collateral to lenders so as to be considered for approval.
Ideal Interest Rates
In case there is one critical component that any small business needs to look out for before looking for a loan, it must be the type of interest rates that you need to be paying back. Unsecured lines of credit are very well-known with low-risk debtors for their ideal interest rates. In many cases, unsecured lines of credit will come with favorable and lower interest rates as compared to conventional business loans.
No Extra Monthly Charges
Don’t be confused with the term small business loans; unsecured lines of credit will not place any monthly payment load on the business owner unless the fund is already in use. This is absolutely exclusive from another type of loan, whereby you are regularly required to start making payments at once after the grace duration of 30 days whether the loan is already in use or not. This is one characteristic that makes unsecured lines of credit more attractive primarily to small businesses.
Continuous Access to Capital
Unsecured lines of credit include an impressive characteristic of revolving terms that is primarily based on the fact that you can access to them for the life of your business. This is crucial for small businesses as they continuously require working capital to run and unsecured lines of credit are appropriate funding solution.
It is essential to keep in mind that unsecured lines of credit are quite different from small business loans. Unsecured line of credit can be obtained for a variety of different reasons whereas the small business loans are acquired for one specific objective.
Tips For Establishing A Line Of Credit
- Almost certainly a bank will not provide a line of credit to a new project without the personal guarantee of repayment of the owner.
- In case your business is noticeably new and the bank isn’t contented with the primary and secondary sources of repayment, it may ask for personal collateral to secure the loan.
- In case the venture is a corporation or partnership with more than one principal, the traditional lender will likely collateralize the loan from all of the principals involved to acquire a line of credit.
- You have to provide reasonable financial documents that follow standard accounting practices to get a line of credit.
- Unless you are a well-established business, you have to provide documents such as cash flow documents that reveal your ability to pay back the cash.