Are you looking for a small business line of credit to help with a cash flow crunch or to have money on hand whenever you need it? A business line of credit is a short-term loan with a revolving credit line typically used for operating expenses, such as to cover bills, make payroll, or fix a vital piece of equipment. Many financing institutions, such as banks, credit unions, and online lenders, offer business lines of credit; however, not all are created equal. To find your company’s best business line of credit, you need to understand the difference between a secured business line of credit and an unsecured business credit line.

What is a Business Line of Credit?

A business line of credit works similarly to a business credit card account. Borrowers apply for a preset sum to draw from when needed. Once approved, the funding amount is set aside separately for the borrower’s use. Then, depending on the loan terms, the borrower pays back the amount drawn through monthly installments and, sometimes, additional fees. The borrower pays interest only on the borrowed amount, not the entire sum. Once the money has been repaid, the borrower can draw upon the funds again. The money is available for as long as the terms dictate. Or, if the business defaults on payments, the lender may terminate the loan and require the loan to be paid in full.

You may be familiar with other credit lines, such as a home equity line of credit or a personal line of credit. The difference is how the funds are used. With unsecured and secured business lines of credit, the money must be used only for business purposes.

What You Need to Know About a Secured Business Line of Credit

A business line of credit can supplement your cash flow, help you expand your business, and manage expenses. Typically, secured business lines of credit are offered by traditional banks and credit unions. In a secured line of credit for business, the loan amount is tied to some form of collateral, such as accounts receivable, your business’s building, or sometimes, the owner’s assets, like a home. With a business’s secured line of credit, the collateral can be seized if the company cannot make the payments on time.

On a positive note, secured business lines of credit usually have lower interest rates. Having collateral backing the loan lowers the risk for the lender, so they factor the collateral in when formulating the loan terms. Also, the best-secured business lines of credit aren’t as concerned about less-than-excellent business credit scores. A business’s credit score and credit history tell the lender how likely the borrower is to repay the loan on time. If your company has a lower credit score due to late payments or not enough years in business, you may still be approved for a secured business line of credit because the loan is backed by collateral.

Finally, a secured business line of credit may enable your business to receive longer loan repayment terms. Again, because your assets, most likely property, back the loan, the lender can offer longer terms knowing that property increases in value over time.

Of course, the biggest downside to a secured business line of credit is losing valuable assets if you cannot make the payments. Depending on the amount you want to borrow, you may need to offer significantly significant assets as collateral which, if seized, could put your company out of business.

Also, pay close attention to the fees and interest rates in the secured business line of credit agreement. Usually, financial institutions offer variable rates, which could increase substantially if economic conditions change. Even with a large bank, such as the Wells Fargo secured business line of credit, the fees and interest rates vary depending on the company’s years in business, credit scores, and how much money is being borrowed.

What is an Unsecured Business Line of Credit?

The main difference between an unsecured and a secured business line of credit relates to whether collateral is involved. Unlike a secured business line of credit, an unsecured business line of credit requires no collateral or personal guarantees. Therefore, borrowers are not at risk of losing valuable real estate or equipment.

The unsecured business line of credit also has a quicker approval time, which is a considerable advantage over the secured business line of credit. In a secured business line of credit, the borrower must appraise their collateral before the loan can be approved. In an emergency, the time lost could be crucial.

Both secured and unsecured business lines of credit are considered short-term loans. Borrowers usually only have access to the funds for a year or so before the line of credit needs to be renewed. However, in most cases, if you stick to the terms of the agreement, renewing the business line of credit is relatively simple.

In addition, paying off a short-term loan contributes positively to your credit history and credit score—which is essential if you ever want to obtain a larger business loan to expand your company. If you’re looking for a smaller amount of money to borrow to improve cash flow and act as a backup fund in an emergency and quicker approval times, an unsecured business line of credit could better suit your company.

Where to Find an Alternative to a Secured Business Line of Credit?

If your business cannot qualify for a line of credit from a bank, don’t worry. Financing Solutions offers an unsecured line of credit for businesses. There is no charge to set up the line and nothing to repay until you use it, so it is a perfect small business backup plan.

Your business must be at least two years old with less than $5 million in assets to be eligible for a line of credit from Financing Solutions. The process is quick and easy, and the line will remain available for up to 12 months. In most cases, you can get the money you need in less than 48 hours.

Financing Solutions is an alternative lender offering an easy application process (it takes less than two minutes to fill out) and requires no collateral or documentation for a written offer letter. Other alternative lenders have a much longer application process and can be relatively expensive.

The founders of Financing Solutions have started and grown several companies together, so we understand how important it is to keep costs low. That’s why we don’t charge you to set up the credit line, and there are no maintenance fees. We don’t ask for personal guarantees, and applicants can receive a no-obligation offer letter the same day.

We make approval decisions based on our decade of experience working with small businesses. Find out today why we have five-star ratings from the Better Business Bureau and Google. Also:

  • There are no costs to set it up or keep it in place
  • The easy 2-minute application online application
  • If approved, you’ll receive a same-day, no-obligation offer letter
  • The fastest setup, 48-72 hours
  • Once you have the line of credit, requests for funds are wired to your bank in minutes.
  • You can use your line of credit whenever needed
  • Inexpensive when used (low fees)
  • There are no restrictions in place or collateral required
  • No personal guarantee is required, either
  • Financing Solutions is a leading provider of lines of credit
  • We are a reputable company with an A+ & 5-star rating
  • You can pay off the line whenever you are ready
  • The credit line is easy to renew and renews yearly
  • You have a secured account portal access 24 x 7

A business line of credit is a good funding resource available whenever your company needs it, without the heavy burden of term loan requirements. If you want to see if your small business would be approved and for how much, please fill out the no-obligation, 2-minute line of credit application here.