Startup businesses have very few financing options. If you don’t have personal savings to invest or can’t borrow money from family and friends, chances are you will have to turn to debt financing. There is typically only two debt financing options that startup business owners will qualify for. This includes microloans and unsecured business lines of credit. Microloans typically only go up to $50,000 and the average startup business gets around $13,000 (sometime less). Furthermore, the process of obtaining a microloan can be long. This is one of the primary reasons why I recommend startup business owners consider applying for unsecured business lines of credit. Unsecured business lines of credit can be simpler to obtain (in a shorter period of time), the key is having good personal credit.
Unsecured business lines of credit have revolving terms therefore you can have access to them for the life of your business as long as you properly maintain them and the lender wants to continue the relationship with you. This is important because you will need working capital throughout the lifetime of your business. Having unsecured business lines of credit to cover your expenses could help you keep your head above water when/if the business goes through slow periods. You can also get much more funding with unsecured business lines of credit than microloans. I’ve had startup business clients get as much as $283,000 in unsecured business lines of credit to fund their business.
Unsecured business lines of credit are considered short term financing. (This may only be a con for some, it depends on the business industry). Therefore, they shouldn’t be used on things that won’t immediately generate revenue for the business. For example, unsecured business lines of credit should be used for things like marketing and advertising. Good marketing and advertising will generate leads that turn into sales. Using the unsecured business lines of credit to purchase something like equipment (that doesn’t help you generate immediate sales) should be avoided. The reason is because you don’t want to carry an outstanding balance on your unsecured business lines of credit for too long. It’s wise to pay down the balances within one year, especially if it is over 30% of the total available credit limit.