With the economic downturn, small businesses have been finding it more difficult to find funding options but recently, there has been a lot of attention given to unsecured business loans and lines of credit. These finance choices provide small businesses the opportunity to meet their needs but there are some things that a business should be aware of before deciding that they should take out an unsecured line of credit.
Fact 1 – An unsecured line of credit is not a loan
Sometimes people tend to put unsecured business line of credit in the same category as a loan, but, in fact, a line of credit is not a loan. A line of credit is similar to using a credit card while a loan is a one-time deal. When a small business takes out an unsecured line of credit, they can use that credit any time they want and as many times as they want. With a loan, a business would have to reapply for a new loan each time.
Fact 2 – Lenders do not require collateral for unsecured funding
One of the advantages of an unsecured funding option, such as a line of credit, for a business is the fact that they do not have to put up any type of asset or collateral. This absence of a physical guarantee is what gives the unsecured funding its name. Secure funding requires a business to guarantee the repayment of the amount borrowed by offering the lender something of equal value in the case that the business defaults on the loan.
Fact 3 – Unsecured lines of credit offer many choices
An unsecured business line of credit can be granted with a limit of a few thousand to several hundred thousand dollars. Businesses can determine the amount of money they want to qualify for, and, if the business should determine later on that they need a higher limit, they can contact their lender to renegotiate their line of credit amount.
Opportunities for businesses
Unsecured funding offers opportunities to small businesses, enabling them to continue growing and building their customer base. Companies use this type of funding for a variety of purposes and, if managed wisely, an unsecured business line of credit can be a great finance tool.