Cash Flow Problems? Unsecured Business Lines of Credit Might Be the Answer
There are a number of things that could go wrong leaving a business with a cash flow problem. Whether it’s a missed payment from a customer, a server crash, or an equipment malfunction, you don’t want to worry about if you have enough cash on hand to cover the expense. This is where opening unsecured business lines of credit may be beneficial to you.
What is a Business Line of Credit
A line of credit is often more flexible than a standard term loan. A line of credit has a max amount you can borrow, but you don’t have to borrow the whole amount, whereas a loan gives you a set amount at the start and then expects you to pay back that set amount plus interest, regardless of if you’ve used it all or not.
For example, if you’ve borrowed 7,000 dollars then a loan will give you all $7,000 upfront whereas a line of credit has the $7,000 set as the max amount of money you can borrow total. If you’ve only used $3,500 of those dollars than the loan still requires you to pay back all $7,000 with interest. A line of credit, however, lets you borrow and repay only that $3,500 with interest. A line of credit may be borrowed up to the limit and repaid as often as necessary while most loans are for one term only. A line of credit is really not that different from a credit card.
Difference Between Secured and Unsecured Lines of Credit
In most cases a line of credit asks the borrower to put up something as collateral. This insures that if the loan cannot be repaid for any reason the lender has something they can keep to mitigate the loss. Unsecured business lines of credit do not require collateral. These often require the business in question to have a high annual revenue and the owner to have a good or excellent personal credit score instead. In some cases the maximum amount you can borrow may be lower than a secured line of credit to help the lenders balance out the risk involved to themselves.
If you don’t want to take the risk of putting up an asset as collateral, unsecured business lines of credit may be an option for you. If you have one open ahead of time you can feel comfortable knowing that no matter what surprises hit your business, you can have the funds available to take care of it.
