Unsecured Lines of Credit for Your Small Business

Small businesses can face challenges that larger companies may not. One of those challenges can be access to operating capital, and that’s when using unsecured lines of credit may save the day.

Benefits of Unsecured Credit Lines

Rather than borrowing a specific amount of money, a line of credit gives you the flexibility to draw only the funds you need when you need them. That means you’ll only pay interest on the money you use.

A line of credit gives you quick access to funds so you can meet unexpected obligations or take advantage of sudden opportunities. You may also be able to make online or telephone transfers.

This type of financing usually allows for more flexible payment terms. Instead of paying a fixed amount each month, payments can be adjusted to match cash flow fluctuations. Making timely payments is important, whether the payment amount is more, equal to or less than the minimum.

Two Types of Unsecured Credit Lines

Traditional unsecured lines of credit are usually provided by banks. They typically require a lot of documentation, both for the business and you, the owner. Business and personal tax returns and bank account details are usually the minimum information that must be provided. You must meet more stringent qualifications, too, but you can benefit from lower interest rates. The business will also need to undergo periodic financial reviews in order to keep the line of credit open.

Non-traditional unsecured credit lines are often much easier to obtain. A major consideration is the business’s FICO score, and less documentation is necessary than for a traditional unsecured credit line. Reduced documentation requirements can mean faster access to funds. While interest rates may be higher than for traditional unsecured lines of credit, the approval generally doesn’t require annual review.

 A Third Option for Unsecured Credit

If your business is new, without a lengthy credit history, or if economic setbacks have damaged the business’s credit rating, obtaining a business credit card may be the solution to some of your financing needs. The approval process is generally quick, and making payments on time will help to build or repair the business’s credit score.

Access to credit is vital to the success of any business, but the type of credit available to your business depends on many factors. Make an honest assessment of the business’s creditworthiness so you can determine which products meet your needs best. Unsecured lines of credit may provide the funds and the flexibility to help your business grow.