How Do I Get an Unsecured Business Line of Credit?

We’ll take a deeper look at what this term means later on, but an unsecured business line of credit is essentially a loan in waiting.

So, for companies that could be struggling financially, this is something that is essential to keeping the business afloat.

If you do not have any experience with obtaining an unsecured line of credit then this can be daunting.

But there’s no need to worry, in this guide we’re telling you everything that you need to know about unsecured business lines of credit, as well as how to get them. So keep on reading.

What is an Unsecured Business Line of Credit?

Earlier, we referred to an unsecured business line of credit as a “loan in waiting”, so let’s take a deeper look at what we meant by this.

Lines of credit are similar to business loans as they can be unsecured and secured.

A business line of credit is essentially a finance resource that a company is able to use, if they need it. It is essentially there as a safeguard to ensure that the business never stops having a continuous cash flow.

With a business line of credit, you can always use money up to a certain financial limit when required.

You might be reading this and wondering ‘Where do I get a business line of credit from?’, and the answer is simple. The bank.

Most lenders will offer business lines of credit as long as you fit the criteria, but one of the most trustworthy options is the bank.

You should be aware that the process of applying for a business line of credit isn’t simple.

Just like when you apply for a loan, you will be put under very tight scrutiny, and you will need to provide lots of documentation before you will be approved. But, once you have this line of credit, it is always there.

A financial source that you can rely on when times get difficult to ensure that your business does not go under.

But, that’s just a line of credit. So what is an unsecured business line of credit? And what is the difference between this and a secured line of credit?

Again, the difference between a secured and unsecured line of credit is the same as the difference between a secured and unsecured business loan.

That is to say that a secured business line of credit usually requires you to give a down payment to the bank as collateral for your line of credit.

Whereas, unsecured lines of credit usually do not need to give any money as collateral. Instead, they simply have to repay the amount of money borrowed from the line of credit once it has been spent.

Now, that’s enough about what an unsecured line of credit is, let’s take a look at how you go about getting one.

How to Get an Unsecured Business Line of Credit?

As a small business, you might be looking for an unsecured business line of credit to safeguard your business.

If you are in an industry where income could fluctuate throughout the year, then it is generally a good idea to obtain a business line of credit if you can.

Even though unsecured business lines of credit are very different from business loans, the process of applying for them is fairly similar to one another.

This means that you will need to gather a number of documents before you can begin your application. It also means that you should assess your own personal finances before applying.

While you could just approach a bank to ask about a business line of credit, it is best to get all of your things in order before you do this.

If you go to a bank unprepared, they will likely send you away until you gather everything that you need. This is why it is best to do your own preparation first.

This preparation should include checking your own personal credit rating, as well as checking the credit rating of your business.

If either of these is bad, then there is a chance that the bank will decline you. So, it is best to do anything in your power to improve this before you approach a lender.

As well as checking out your credit score, you will also need to begin gathering documents.

As a small business, the lines between you and your business are often a little blurry, so any lender will want to know that they can trust you just as much as they can trust your business.

So, you will need to gather a variety of documents, including: all the documents that prove your business is registered and operating legally, personal and business tax returns, and possibly even a detailed business plan.

Before a lender is going to offer you an unsecured business line of credit, they are going to want to find out as much as possible about you and your business.

They will want to understand exactly what they are getting themselves into, and what you could potentially use your business line of credit for. So, you should gather as many documents as possible before you approach a lender.

Once you have everything organized, you should then approach your chosen lender.

You will likely have a figure in your head for the amount of money you would potentially like to be able to borrow. So, keep this in mind when you are speaking to your lender. 

Upon your meeting, the information that you have will be assessed, and your application will be submitted. Then you will simply have to wait to see if you have been approved, or not.

Pros and Cons of an Unsecured Business Line of Credit

Finally, let’s take a look at some key benefits and drawbacks of unsecured business lines of credit. Even though they are similar to loans, lines of credit have a lot of benefits that make them the better option.

So, let’s take a look at the pros and cons of this financing option.

Pros

• A Secure Cash Flow - even in off-seasons, your business will always have a secure cash flow as long as you have a line of credit. So, if your business is seasonal, an unsecured business line of credit could help you keep your business afloat during the off seasons. 
• Improves your Business’s Credit History - when you apply for any sort of business loan/line of credit, you will need to provide information on your company’s credit history. A lot of businesses have a very limited credit history, and this can impact whether you will be accepted for credit or not. So, if you take out a business line of credit, and keep up with your payments then this can help improve your company’s credit history. 
• Only pay for what you use - even if you do not use all of your business loan, then you will still need to pay back the full amount with interest. But, with a business line of credit, you only need to pay back the amount of money that you use. You might not even need to pay interest on this if you are able to repay the full amount at one time.

Cons

• Difficult to achieve - there’s no denying that it is difficult to get your application for a business line of credit accepted. It can often take multiple applications before you will be accepted for a line of credit. For the best chances you should gather all the information and documents that we listed earlier before you make your application. 
• Potentially High Interest - if you are unable to repay the amount that you have used in a single installment then you could be faced with high interest rates. This will depend on the terms of your line of credit.

Summary

In short, if you want to get an unsecured business line of credit then you will need to approach a lender, usually a bank.

But, before you do this, you should gather all the documents that you will need for your application to ensure that you are fully prepared.