Unsecured Business Line of Credit
June 20, 2016
Unsecured Business Line of Credit: What Is it and Do You Need One?
What is an unsecured business line of credit? Naturally, it’s an unsecured line of credit that is used for your business, but what exactly does this mean, and do you need one?
When you’re trying to make a business work, you need every advantage you can get, and an unsecured business line of credit can really come in handy in certain situations.
Here’s the information about what an unsecured business line of credit is, how to know when you need one, and how to get one.
What Is an Unsecured Business Line of Credit?
A line of credit is an amount of money made available to you by a lender that you can draw on at any time, up to the limit of the line of credit. When you apply for a business line of credit, you make it clear that you will be drawing on this money in order to keep your business running.
Lines of credit can be better than outright loans because you can take out, and subsequently pay interest on, only the amount of money you will need. An unsecured business line of credit is a line of credit offered to you by a lender without any collateral put up against it.
That is to say, if you should default on the money borrowed, the lender cannot seize any of your assets to pay the amount owed.
Do You Need an Unsecured Business Line of Credit?
Hopefully you do not need an unsecured business line of credit right now. The time at which you would need an unsecured line of credit for your small business is if you do not currently have sufficient equity in anything you might use as collateral. This can happen when a business is overextending itself a bit in order to follow through with a necessary expansion, or when the business is trying to weather a downturn in the economy. At times like these, some additional financing may be needed to get the business through. This is when an unsecured line of credit can really come in handy.
Can You Get an Unsecured Business Line of Credit?
If you want to be able to get an unsecured line of credit when you need one, the time to start preparing is now. A lender will only extend an unsecured business line of credit if your business shows a top business credit score (they will usually be looking on the PAYDEX scale, provided by Dun & Bradstreet), and your business credit profile shows a history of responsible borrowing and timely payments.
If you anticipate that you may someday need an unsecured line of credit, your best move will be to order your business credit report and score today to see where you stand.
If your score isn’t high enough, learn what you need to do to boost it. This is usually simply a matter of making your current payments to creditors earlier. If you monitor your business credit profile consistently now, you’ll be prepared when you need that line of credit.