Unsecured Line of Credit for Small Business | Small Business Loan Central

In today's business climate, small companies are taking every measure possible to ensure success through profit. Keeping a solid cash flow is critical for sustaining the business. Businesses do not fail for lack of profits; they often fail for lack of cash-flow. Companies both large and small depend on credit to help them stay liquid and invest in continued growth of their enterprise. There are many financial institutions that extend a credit line to small businesses. An unsecured business line of credit will help your business compete in the global marketplace while preserving capital and maintaining cash flow.

What is an Unsecured Line of Business Credit?

An unsecured line of business credit is usually an open-ended loan extended to a small business without the need for collateral such as equipment, real estate, cash deposits or company vehicles.
This form of credit gives your business access to cash whenever you need it. You pay interest only for the funds you draw and for the term you are overdrawn.
The cash from an unsecured business line of credit can be used for any purpose, from meeting payroll expenses to acquiring company vehicles and expanding office space. Use your credit to purchase inventory, improve your marketing efforts or solicit new clients.

When is an Unsecured Line of Credit better than a term loan?

There are many reasons that obtaining a commercial credit line is favorable to business. The first benefit is flexibility. Having credit at your company's disposal will preserve capital that may be used in case of emergency. Most unsecured commercial lines of credit will allow you to avoid paying interest until you draw on the loan. This helps your company avoid high interest fees while at the same time, maintaining liquidity.

What Types of Unsecured Credit is Available?

Banks typically have two buckets for extending an unsecured credit line. If your business is relatively new (2 to 4 years old), you may opt for an SBA backed unsecured credit line of up to $100,000. The interest rates are variable, tied to Prime Rate of most banks. This form of credit allows drawing of funds using a credit card issued by the financial institution. For an established business that has been in operation for 4 or more years, you may opt for a premium form of credit line, where you will also receive a personalized checkbook for paying vendors that may not accept credit cards.
The amount of such a credit line ranges between $10,000 and $100,000 and interest is calculated on a revolving basis every month.

Benefits of an Unsecured Line of Credit

The unsecured line of credit usually carries a lower interest rate (APR) than consumer credit cards and many banks will offer unsecured credit lines of up to $750,000 depending on your business situation and history.

Who Can Get an Unsecured Business Line of Credit?

The amount of credit your small business can receive is dependent on a few factors. If your company is structured as a sole proprietorship, your ability to receive a loan is predicated on your personal credit history. As with a consumer loan or line of credit, your FICO credit score will determine the amount of credit that is extended to your business. Most financing companies will require a score of at least 700 to qualify for a loan. In addition, many banks will require that your business have been in operation for at least two years to qualify for an unsecured line of credit.

Be prepared to create a loan request statement that describes the purpose and duration of the loan and any repayment terms. Include a thorough description of the principal employees of the company, their duties and the length of time they have been with the company. It is also helpful to include a forecast of your expected sales and growth of the life of the loan.