Unsecured Business Line of Credit | 15 Popular Questions


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Unsecured Business Line of Credit: 15 Popular Questions

7 min read. Updated February 28, 2022 – by Joe Camberato

What is an unsecured business line of credit, and how does it work? What makes credit unsecured in 2022? Continue reading to learn more.

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.

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. 

For some, unsecured financing may be an option. Small business owners tend to prefer unsecured financing, since it’s less risky and the process is more simplified. 

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.

unsecured business line of credit

1. 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.

2. What is an Unsecured Business Line of Credit?

An unsecured business line of credit (LOC) is a 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 towards 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 choice of financing.

Unsecured Business Line of Credit: How to Get Funding With NO COLLATERAL

3. What is an Unsecured Revolving Line of Credit?

Unsecured revolving line of credit is a business line of credit 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 on how a revolving, unsecured business line of credit works – not to 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:

  • 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.
  • You can draw from this line of capital as often as you need, and you’ll never have to reapply or wait for approval. 
  • 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. This is a key differentiator between an unsecured small business loan and an unsecured business credit line.
  • Once you repay the amount you’ve borrowed, funds will immediately be added back towards your unsecured business line of credit, allowing you to withdraw again. 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.

4. What are the Benefits of Unsecured Loans?

Some of the benefits of unsecured loans for businesses include the quick and easy application, the possibility to get funding without collateral which makes unsecured financing less risky, as well as building positive credit history for future applications once the loan has been paid.

In other words, small business owners who seek to use an unsecured business line of credit and unsecured business loans do so for a variety of reasons.

For starters, unsecured financing is less risky. When you’re not signing away the rights to your personal or business assets, you don’t have to worry about losing your home, business, or anything else. 

Unsecured financing is also faster and more simplified. Because there is no collateral requirement, there are less hurdles, due processes, and documents to go over and sign. Instead, everything is more straightforward – allowing business owners to get the capital they need fast.

Get Your Unsecured Line of Credit!

5. What is the Difference Between an Unsecured Business Loan and an Unsecured Business Line of Credit?

The main difference between an unsecured business loan and an unsecured business line of credit is that, while both are financing options that are not backed by collateral, business lines of credit are generally the more flexible option, allowing borrowers to only pay for what they use. In contrast,

A business line of credit is technically a loan product, since a predetermined amount of money is granted, which has to be paid back to the lender over a set timeframe along with a small amount of interest. 

However, unlike an unsecured small business loan, where the borrower repays a set amount in relation to the total amount of capital borrowed, an unsecured business line of credit allows borrowers to only pay for what they use.

Plus, instead of fixed payments typical with business loans, paying back and refueling your unsecured business credit line is extremely flexible. You pay back on your own terms and how you see fit.

6. How does an Unsecured Business Line of Credit Compare to Other Financing Options?

Wondering if an unsecured business line of credit is the best option for your business?

If you want easy access to working capital and don’t have collateral (or would prefer not to put your assets up), then it’s a no brainer. You only pay for what you withdraw, so you’re not committing to paying interest on funds you haven’t used. 

Instead, an unsecured business line of credit gives you access to a large amount—without putting up any assets—which you can draw from as you need. You can use it to fund growth, cover sudden expenses, make payroll, and more. If you need more cash, simply draw from it.

If you’re unsure how much cash you’ll need or use, and flexibility is a priority, then a line of credit is definitely the way to go.

If not, you can still get financing through other alternatives. The best financing option isn’t always straightforward. Instead, you need to take into consideration exactly what your goals are and the conditions you’re most comfortable with.

7. What is the difference between Unsecured Business Line of Credit Vs. Business Credit Cards?

The main difference between an unsecured business line of credit and a business credit card is the flexibility of the two financing products, as well as the spending limit that each one of them has. While you can use both to pay for expenses without cash upfront, an unsecured business line of credit gives you more freedom and higher spending limits, which are better for covering long-term business projects.

As opposed to business line of credit rates, credit cards rates are also usually much higher, and have higher annual fees. Cash advances, which allow you to obtain cash immediately, can be incredibly expensive on a credit card. 

8. What is the difference between an Unsecured Line of Credit and a Term Loan?

When comparing an unsecured line of credit vs. term loan, the former is unbeatable when it comes to flexibility.

Unlike a line of credit, a term loan grants you the entire amount upfront as cash. You’re responsible for paying that back based on a set, pre-determined schedule. 

Because of this, term loans are only ideal when your upcoming expenses are planned. For example, if you’re purchasing real estate or a piece of equipment with a set price. Term loans are also a good option if you need a large funding amount and you can demonstrate the potential payoff of your project to the lender. 

On the other land, an unsecured business line of credit is a better fit if you are looking to cover ongoing expenses – such as payroll or operating costs.

8 Key Differences Between Unsecured Loans and Credit Lines

differences between revolving credit and loans

9. Which Type of Unsecured Business Line of Credit is Best for You?

For small businesses seeking financing, there are two main types of unsecured business lines of credit: traditional and non-traditional (alternative). So how do you determine which is the best choice for your business?

9.1. Traditional Unsecured Business Line of Credit

Traditional unsecured business lines of credit are issued by a bank. Banks tend to be more conservative lenders and will usually require a substantial amount of documentation from borrowers. 

This can include financial statements, personal tax returns, business tax returns, bank account information, business registration documents, a business plan, and more, depending on the lender.

Once a traditional business credit line has been issued, an annual financial review is required to maintain the line of credit. Traditional business lines of credit are difficult to be approved for and maintain. However, they come with various benefits, such as lower interest rates.

9.2. Alternative Unsecured BLOCs

The alternative unsecured business line of credit is a type of product that’s offered by alternative lenders. An alternative lender is any financial institution that’s not a traditional bank.

National, for example, is a FinTech marketplace and also an alternative lender. Therefore, National is able to provide business financing without the rigid restrictions traditional banks require. 

At National, our lending criteria is more “user-friendly” and our loan approval and processing is fast (applicants typically receive unsecured funds in as little as 24 hours).

And instead of traditional banks with notoriously low approval rates, we extend small business lines of credit to over 90% of the applications we receive. 

How is this possible? While traditional lenders look at your assets and credit score to determine your eligibility, at National, we consider the entire picture and place emphasis on your business’ potential for growth. 

A non-traditional unsecured small business line of credit can be an essential funding tool for any business to have in its financial arsenal.

10. What are the risks of unsecured business financing?

Unsecured business financing tends to be more risky for lenders and less risky for borrowers. That’s because collateral gives lenders an additional guarantee. If borrowers are unable to repay what they’ve borrowed, a lender can simply claim the asset, sell it off, and recover their losses. 

This isn’t possible with unsecured financing. Instead, the lender will have to determine whether the borrower is trustworthy based on other criteria, such as revenue levels or credit score. 

Borrowers have a distinct advantage when it comes to an unsecured business line of credit. That’s because there’s no collateral requirement and you don’t have to pledge anything – meaning your assets are safe in the event of a default.

11. Why Should You Apply for an Unsecured Line of Credit Instead of Secured LOCs?

Still deciding between an unsecured vs. secured business line of credit? We’ve laid out 4 reasons why small business owners should go the unsecured route.

  1. You don’t have enough collateral. The biggest reason why an unsecured line of credit may be a good fit, is if you don’t have enough collateral to satisfy a lender. By definition, a secure line of credit requires collateral so without enough assets to get approved, an unsecured line of credit can be a great alternative to get the funding you need.
  2. You don’t want to pledge your personal and/or business assets. For a variety of valid reasons, you may not want to pledge your personal and/or business assets – which means that an unsecured line of credit is a better fit.
  3. You don’t want to have your assets undervalued by a lender. Banks that offer secured lines of credit (as well as secured business loans) are notorious for undervaluing collateral. For example, industrial equipment that’s worth $50,000 in the marketplace might be valued at only $40,000 or even as low as $30,000 in some cases. Banks do this to reduce their risk threshold even further. For borrowers, however, it means that they need to pledge even more assets – which increases risk on your part.
  4. You want a line of credit quickly. Last but not least: secured lines of credit can take months to materialize. The application has to go through multiple loan officers and managers – plus the collateral evaluation process is notoriously time-consuming. Unsecured line of credit applications are much simpler to process, and approval is significantly speedier.

12. What Can You Do with an Unsecured Business Line of Credit?

For many small business owners, an unsecured line of credit is just the thing they need to accomplish their goals and take their business to the next level. Here’s what you can do with an unsecured line. 

  • Hire more more staff
  • Replace or upgrade a key piece of equipment
  • Expand or relocate your building
  • Make spontaneous and ongoing purchases to take advantage of unexpected opportunities
  • Resolve issues in cash flow due to seasonal dips in sales or slow customer payments (this is especially useful for manufacturers, distributors, retailers and even medical/healthcare and dental practices).
  • Purchase real estate or a new headquarters.

13. What are the Requirements for Unsecured Business Lines of Credit?

Getting an unsecured business line of credit doesn’t have to be complicated. In fact, National makes it easy. The application process takes about a minute and funding takes hours. Here’s what you’ll need to qualify for an unsecured business line of credit from National.

6 months in business required for unsecured financing

3+ Months in Business

We offer business credit lines to all companies that have been in business for over 3 months.

$120K needed for unsecured credit line

$120,000 in Annual Gross Sales

Whether you do $120,000 or $12,000,000 in sales, we got your back!

no credit score required for usnecured financing

No Minimum FICO Required

You don’t need to have amazing credit to qualify for a business line of credit— at National, we offer solutions for all types of credit profiles.

14. How can I Get an Unsecured Business Line of Credit with Bad Credit?

Traditional lenders and banks require you to have an excellent credit history before approving you for an unsecured business line of credit. However, National has more flexible requirements, making it easier for you to get the financing you need. Since we are not affected by banking industry restrictions, we can offer many alternative financing options to small business owners.

No matter your credit history,  it may still be possible for you to obtain unsecured business financing.

15. Why Choose National for Unsecured Financing?

At National, we seek to establish long-term financial relationships with each of our clients. We know that to stay in business you must grow your business, and that tomorrow’s success is founded on today’s financial business relationships. We make sure you can depend on us for funding whenever you need to take your enterprise to the next level.

National’s business lines of credit are flexible, fast, and dependable. If you could benefit from an unsecured business line of credit, know that we can not only provide the funding you require, but also the resources and expert business advice you can depend on. 

Choosing National means you will have no upfront fees, lightning fast 24-hour approval, and efficient service delivered with a personal touch. The approval process for unsecured business finance is based on the overall picture and your potential for growth; financial setbacks are not grounds for immediate loan disqualification.

Apply for an Unsecured Business Credit Line

Fill out our 1-minute application to get started, or give us a call at (877) 482-3008. We’re happy to provide more information on unsecured business lines of credit and unsecured business loans and walk you through the process.

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Last Updated on October 14, 2020

National Business Capital helps entrepreneurs secure quick and fair financing to save time and cultivate sustainable growth.

Our stress-free online platform is designed for simplicity and speed, helping business owners go from application to approval in a matter of hours. And while we remain a leader in the Fintech industry, our clients agree it’s our personalized service and award-winning team that sets us apart.

From SBA loans to lines of credit, to equipment financing, and more, business owners can access all the different financing programs available to them in one place. Through our streamlined process, we have helped clients secure $2 billion in financing since 2007, and, more importantly, we’ve helped entrepreneurs save a tremendous amount of time and grow faster.

About the Author, Joe Camberato

Joseph Camberato, CEO of National Business Capital, developed a passion for business at a young age. Joe started his company in 2007 in his spare bedroom and has grown to secure over $1 Billion dollars in financing for small business owners nationwide. National’s team has an amazing culture and has been name the #1 Top Workplace on Long Island 3 years in a row and counting. Joe is a trusted financial expert who’s published more than 2,000 articles in the last 3 years. His articles have generated over 5 million page views and has been featured on blogs such as Google News, Yahoo, CNBC, Forbes Magazine, etc. His passion has also inspired him to build the "GrowByJoe” YouTube channel where he shares his insights into small business trends and tips for growth. Joe also holds a seat on Forbes Finance Council and is an active member of the Young Presidents' Organization (YPO), a global leadership community.





Disclaimer: The information and insights in this article are provided for informational purposes only, and do not constitute financial, legal, tax, business or personal advice from National Business Capital and the author. Do not rely on this information as advice and please consult with your financial advisor, accountant and/or attorney before making any decisions. If you rely solely on this information it is at your own risk. The information is true and accurate to the best of our knowledge, but there may be errors, omissions, or mistakes.