If you’re in need of some quick cash-flow, there are a few options at your disposal. Find out why an unsecured line of credit is among the most promising.
Whether you’re starting a new business or growing an existing one, you need to have a stable positive cash flow. It’s the lifeblood of your business that allows you to finance everyday operations and growth-oriented projects.
It’s also true that any business can experience a cash crunch at some point. It could come in the form of an emergency repair or an unexpected shortfall in available cash. You get the idea.
When and if this should happen, an unsecured business line of credit can get you unstuck at a reasonable cost. Let’s take a closer look at how it works.
What Is an Unsecured Line of Credit?
Simply put, an unsecured LOC is a form of lending that doesn’t require you to put up anything as collateral, therefore unsecured. You may also know that a credit card account is also unsecured.
Unlike a loan, you don’t get the funds in a lump sum. You tap into the line of credit when you need the money up to a limit. After paying some or all of what you owe, you can reuse the funds. Basically, you draw whatever amount of money you need and pay it back whenever a partial payment is due (usually accrued interest). In the meantime, you can keep drawing more money up to the limit as long as you keep your account in good standing.
You might’ve heard it called by the other name of ‘revolving credit’. Because of its convenience, this is one of the first choices for businesses that need ongoing external financing. There are good reasons for that:
1. You Don’t Need a Perfect Track Record
Major banks have high standards for loan applications. They scrutinise every detail of your business to make sure you’ll be able to pay back the loan. Without collateral, it can be quite hard to get a regular bank loan.
3rd party lenders, on the other hand, are much less demanding. Many of them will listen to you and consider your situations even if your credit history isn’t ideal. Of course, those with a good credit history will be able to negotiate a better deal. The interest rate has an inverse relation to the risk that a lender has to assume.
To get the best possible deal, it’s a good idea to seek help from a business advisor. They can help you build a credit profile with an eye towards more favourable loan terms. Moreover, they can make sure that the application process is fast and smooth.
For example, a two-year-old business managed to get $70,000 in just 10 days after applying. After the advisor helped them clean up their credit profile, they managed to get a no-doc unsecured line of credit with ease.
2. It’s Easily Accessible
The attraction of an unsecured business line of credit is that you can have the money whenever you need it. Moreover, most lenders have digitised fund management and transfers for easy access.
With a line of credit, you can avoid cash flow mishaps and bottlenecks. In addition, you can react quickly to both unexpected setbacks and profitable opportunities.
3. You Can Repay Whenever You Want
When you take out a term loan, there’s always a fixed repayment schedule. If you miss the deadline, you’ll have to pay late fees or penalties. And you may be able to repay some loans earlier without charges.
This isn’t the case with an unsecured line of credit. You can pay down the credit line so that you can access more money whenever you want. What’s more, you can repay it in full without any additional fees. And if you can’t repay in full, you don’t have to. As long as you pay the interest rate and fees as agreed, you get all the flexibility with your outstanding balance.
4. You Only Pay for What You Use
A term loan comes with an interest rate on the full amount of the loan. If you end up not using all the money borrowed, you still pay on everything.
With an unsecured business line of credit, you only pay interest on the funds that you access. In the long run, this can prove to be a much more cost-effective financing option.
It means that you have full control over the money that you borrow. If you’ve overestimated the amount that you need, you won’t face additional fees for borrowing money that you don’t use.
5. Your Credit Line Grows with Your Business
Many business owners decide to go with an unsecured line of credit for the long term. It’s always a good idea to have some spare cash for when you need it. And since you don’t have to pay for it if you don’t use it, there’s really nothing to lose here.
Better yet, your borrowing power grows with your business. This is very helpful because you’ll likely face more demanding challenges as you grow your business. In addition, you can always work to improve your standing and negotiate a better deal with the lender.
The Bottom Line
You can now see why many business owners decide to go with an unsecured business line of credit. It’s an easily accessible option that can help you finance your business without severely affecting your cash flow.
Better yet, it’s among the most cost-effective financing options if properly managed. Although the interest rate is higher, you don’t have to pay interest until you use the funds. And then only on the amount that you owe. As a result, you can direct more money towards growing your business.
Of course, there are still a few additional things that you should know about an unsecured LOC before you make your final decision. And we can help you with this. For more details about this financing option, go ahead and visit our website.