When your business needs cash, there are a number of ways it can be obtained. While there are ways that funding can be raised, such as through investments, these efforts are often slow and uncertain. However, businesses can use unsecured business lines of credit to infuse the business with cash in order to achieve goals.
Unsecured business lines of credit
The two main types of unsecured lines of credit for businesses are traditional and nontraditional. Traditional lines of credit require a significant amount of documentation because it is often in a higher amount for the business. Nontraditional lines include things such as business credit cards. No collateral is usually needed for unsecured loans, but there are still specific requirements that must be met in order to qualify for unsecured lines of credit for businesses.
Requirements to qualify
There are multiple areas of the business examined to qualify your business for an unsecured line of credit. These areas include:
- Business credit report
- Bank account
- Financial history
If a business fails in any of these areas, it is likely the business will not qualify for an unsecured line of credit for the business. Different types of credit lines will have different minimum requirements in each of these categories. In addition, outstanding ratings in one or more categories may cancel out a poorer rating in one of the other categories.
Unsecured vs. secured lines of credit
The primary difference between unsecured and secured lines of credit is the use of collateral. Secured lines of credit for businesses require collateral to be put up, but unsecured lines of credit usually do not.
Benefits and drawbacks of unsecured lines of credit
There are both benefits and drawbacks of the use of unsecured lines of credit. These should be taken into consideration when considering obtaining an unsecured line of credit.
- A quick way to obtain cash for the business
- Business is protected if you default on the loan
- Unsecured loans are often discharged in the event of bankruptcy
- Higher interest rates
- Stricter qualifications