Unsecured Business Line of Credit: 15 Popular Questions

Oftentimes, lenders may require you to put up collateral in order to minimize risk on their end. Unsecured financing refers to business loans and lines of credit that don’t require collateral – as opposed to asset-backed financing. Entrepreneurs commonly ask, “What is an unsecured business line of credit?” and “What is an unsecured credit line?” during their search for the right option. In short, the specifics come down to whether or not you’ll offer collateral to “secure” your financing. Collateral can be any asset you own that is of value, such as real estate, business equipment, unpaid invoices, investments, and more. Not every lender or financing product will require collateral, but for younger small businesses, those with less than great credit, or applications for large funding amounts – you may be expected to put up your assets. So how do you know whether you qualify for unsecured financing? In this guide, we’re going over all the ins and outs of unsecured business loans and unsecured business lines of credit.

What Is an Unsecured Business Loan?

One of the fastest and most convenient funding examples is an unsecured business loan. It works the same as a typical business loan, except there’s no need to put down your assets as collateral. With no collateral requirements, you don’t run the risk of losing your car, home, or business. Instead, lenders will assess your application based on your ability to repay your loan and your credit score.

What Is an Unsecured Business Line of Credit?

An unsecured business line of credit (LOC) is a financing solution that provides access to credit without any form of collateral. Unlike a business loan, you can draw funds from your total credit limit as needed and only pay interest on the amount drawn. funding option that gives you access to a line of credit without any form of collateral. As opposed to its secured alternative, since it isn’t backed by collateral, it often has higher interest rates and shorter repayment terms. Business lines of credit give you access to a reservoir of funds you can withdraw from up until a set maximum amount. You’ll be able to withdraw at any time and won’t have to make any payments unless you actually use your line of credit. Some business lines of credit are revolving, which means that as you make payments toward your balance, those funds will once again be available to use. For those with limited personal or business assets or those more at risk of foreclosure, unsecured business loans and lines of credit are the ideal choices for financing.

What Is an Unsecured Revolving Line of Credit?

An unsecured revolving line of credit is a business credit line that doesn’t require collateral, allowing you to withdraw funds up to a set capital limit that will immediately be added back towards your credit line once you’ve repaid the initial amount you borrowed. If you’re confused about how a revolving, unsecured business line of credit works – don’t worry. We’ve illustrated the process to make things easy. Take a look at this example scenario of a business owner using an unsecured business line of credit:

1. You, the business owner, receive an unsecured business line of credit with a set capital limit. You can draw however much you want, at any time, up until the credit limit. With National, this amount typically caps off anywhere between $10,000 and $5 million.
2. Once you take out a certain amount of capital from your unsecured credit line, you only have to repay the capital you’ve borrowed for that exact amount. For example, if you have a $100,000 credit maximum and you take out $10,000, you’ll only be obligated to pay back the $10,000. Your payment terms may also vary and depend on the unique payment cycle you qualify for, which is a key differentiator between an unsecured small business loan and an unsecured business credit line.
3. You’ll repay the borrowed amount, and the funds will immediately become available within your account, allowing you to draw the same funds again if you need them. For example, if you take out $10,000 from your $100,000 credit line, $90,000 will be left for available withdrawal. Once the $10,000 is repaid, it will automatically be added back into the line of credit, restoring your full balance of $100,000.

What Are the Benefits of Unsecured Loans?

Small business owners who seek to use an unsecured business line of credit and unsecured business loans do so for a variety of reasons.

• Quick and easy application
• Fast funding
• Ability to access capital without collateral requirements (less risk)
• Potential to build credit history with consistent, timely payments

The lack of a collateral requirement reduces the amount of paperwork, which – in turn – speeds up the application and funding process. It also diminishes the risk for the borrower, as they won’t lose a critical business or personal asset if they end up defaulting on the financing. Still, the lender has to mitigate their risk in some way, so they’ll offer higher interest rates and shorter repayment schedules as a result. Get Your Unsecured Line of Credit!