Article summary: What’s the difference between a secured versus unsecured business line of credit and what does it mean for your business.
Highlights
· A line of credit is the most important tool a business can have.
· It’s nearly impossible to get an unsecured business line of credit from a commercial or local bank.
· You must have a plan for potential cash flow issues.
· Even if you think your business will never face a natural disaster or financial emergency, there are numerous other reasons why a line of credit is useful.
· Knowing which types of small business loans you can qualify for will save you time, energy and money.
What is a Secured Line of Credit (and why is it so difficult to get one)?
A secured line of credit is a creditline that you must pledge collateral to get. This collateral can be in the form of real estate, accounts receivable, inventory or the equity in your home. Any type of small business loan that you get from a bank will require collateral.
However, since it is secured, the bank may offer you lower rates or a higher limit, depending on how much collateral you provide. They might also only consider a secured line of credit if you have less than perfect credit. Special note: for a bank, anything lower than a 680 credit score will be deemed inadequate.
Another problem is that not all assets are liquid. Even if you manage to qualify in other areas, the bank may not accept the collateral you want to use to secure the loan.
Of course, you could always try to raise capital for collateral using other people’s money (OPM). Unfortunately, this strategy may take more time than you are able to invest right now.
Overall, banks make it incredibly difficult to obtain a business bank loan. The truth is banks don’t really want to work with businesses that have less than $10 million in annual revenue.
It would be much easier if you could get a fast business loan without collateral or a bank.
Why an Unsecured Business Line of Credit from an Alternative Lender is a better Way to Go
1. Banks say they offer an unsecured business line of credit, but that’s not the whole picture. They do offer them, but only to big businesses with a stellar credit history and tens of millions in revenue. Additionally, they require you to pay the line down to zero at least once a year.
2. You won’t have to wait to get your business cash now. In most cases, you can have your line set up in a few days, instead of it taking months for a traditional or SBA business loan.
3. In general, bank lending is at an all-time low. This trend started with the recession and never picked up. Worst of all, they have so many regulations and hard-to-meet criteria, going to a bank is a time-sucking waste of your energy and resources. Regrettably, banks reject approximately 70 percent of the loan applications they receive.
With all this hassle, you may wonder why anyone ever gets a business line of credit. You might even believe you don’t need one. You would be wrong.
Why You Need an Unsecured Business Line of Credit Now
Running a business is stressful enough – but when you are primed to deal with cash flow issues, the stress goes away. Then you can focus on more important matters, like growth.
Every business has emergencies – and you can’t count on mere luck to get your through. Some business owners believe it can’t happen to them due to the nature of their business, industry or location…until it does. For example, what will happen to your business if your top client unexpectedly goes out of business? Would you still be able to make payroll?
Planning for the future helps to ensure you will be around for the future – so having an unsecured line of credit is a great backup plan. The best time to apply is before you need it. Many lenders run away from a desperate company.
At Financing Solutions, they make getting a line of credit fast and easy. They ask for very little paperwork and it’s possible to get your money the same day.
