Unsecured Business Lines Of Credit In Depth Running any kind of business, small or big is a very challenging job in todayâ€™s times. Even though you put in a lot of effort to try to anticipate future expenses for the business and avail loan accordingly, you never know when the need for those extra funds will arise. To tackle with such problems, applying for a line of credit is the best option available to you. Line of credit is a facility which gives you the liberty to draw money when you require with a certain limit and rate of interest fixed by the lender. In such a facility you are charged an interest over the amount utilized by you, unlike the traditional loan where the entire amount is disbursed at one go and you need to begin paying the loan back regardless of when you actually utilize the money. Hence the line of credit comes in handy for smooth running and miscellaneous expenditures of a business. It could be both secured as well as unsecured. Secured Credit When the lender lends money to you against some collateral which could be property or equipment. If the loan is defaulted then the lender may sell the collateral and recover its dues. This is known as a secured line of credit. This can be used in both personal and business credit. Unsecured Credit A funding which is not backed by any kind of collateral security is termed as an unsecured line of credit. If you have a good credit score, you are most likely to qualify for such kind of loan. Advantages of Unsecured Line of Credit - You can borrow at any time once the facility is granted to you by simply drawing a Cheque. - It is a more flexible type of loan as you can access the funds any time. - There is no fixed amount for repayment. You can repay a lump sum at your convenience . If it is a reducing line of credit, then your limit of drawing will be reduced by a certain amount at the end of each month and if it is a revolving line of credit then your limit will be reinstated as you repay. - The interest rate on an unsecured line of credit is much lower than interest on credit cards Disadvantages of Unsecured Line of Credit - This type of credit can be utilized for miscellaneous expenses or to meet day to day needs only. It cannot substitute secured business loans which are usually for a higher amount than an unsecured line of credit. For any capital expenditure this type of credit is not feasible. - The rate of interest is higher as compared to secured loans as the lender has a greater risk involved in this as it is without a collateral. If you have an established business for at least two years then you would qualify for an unsecured line of credit. Apart from this, be ready with financial statements for the last 2 years along with all schedules in it. It is difficult not impossible to get an unsecured line of credit if you are looking for funding a start up business. You need to work hard on your business plan which you would then present to the lender who will judge your ability to repay the loan based on it.
Published on Apr 4, 2013
Published on Apr 4, 2013
Running any kind of business, small or big is a very challenging job in today’s times. Even though you put in a lot of effort to try to anti...