Unsecured business lines of credit are what I like to call “a hidden gem” in the world of small business finance. This is because there are many benefits that come along with obtaining an unsecured business line of credit for your small business (that may not be immediately obvious to you). Understanding the benefits of obtaining and unsecured business line of credit and how they work will help you determine if this type of financing is right for your small business. The primary benefits of obtaining an unsecured business line of credit include:
- No collateral or assets needed – unsecured business lines of credit are “unsecured financing” which means pledging collateral to a lender is not required to be considered for approval.
- Attractive interest rates – unsecured business lines of credit are usually only available to low-risk borrowers therefore the interest rates are much more desirable.
- Continuous access to capital – unsecured business lines of credit have revolving terms which means you can have access to them for the life of your business, if you properly maintain them and the lender wants to continue their relationship with you. As a small business owner, you’ll always need working capital to operate.
- No monthly payments until used – with an unsecured business line of credit, you will not have any monthly payments unless you actually use the funds. This is completely different from a loan where you have to begin making payments on the loan the first 30 days after receiving it –(whether you’re using it or not).
All in all, unsecured business lines of credit tend to be a much more attractive and popular option than small business loans largely because of the benefits outlined above. Therefore, you have to ask yourself, “Why would I not want a UBL?”
Keep This in Mind
One of the major differences between a small business loan and an unsecured business line of credit is that you would typically get a loan for one specific purpose and a line of credit for a variety of different purposes. Therefore, an unsecured business line of credit is best obtained before you need it so you’ll have access to it when you need it. You won’t have any monthly payments until you use it (unlike most small business loans), so getting it before you’re in desperate need of working capital is a smart business move. Lastly, it’s also important to remember that having access to funding makes you more likely to succeed and less likely to fail so having access to unsecured business line of credit funding is something that smart and intelligent business owners know and take advantage of.