Don’t have the collateral you need to properly finance your small business? Consider unsecured credit, which is a line of credit that doesn’t require you to put up collateral in order to qualify for a loan. As a small business owner, you may not have the same financial resources as larger businesses, but that doesn’t mean you have to give up your dream of owning your own business, or go to great financial lengths to get that business off of the ground.
The Finer Details
A few things to know about this credit option are that you’ll likely need a stellar credit score in addition to a history of your business having a robust flow of cash. The reason for this is that a lender often takes a risk offering unsecured credit, which means certain assurances are needed to show a borrower can be trusted and is likely to pay the loan back. Something else to know is that there are various methods of offering these credit products, such as unsecured business loans/lines, unsecured commercial credit cards, micro loans and merchant cash advances.
Terms, Rates and Sizes
As far as the terms you can expect with most unsecured credit, you’ll likely have a bit a leeway. This is because lenders work with borrowers to create an agreement that is mutually beneficial to everyone involved and one that keeps borrowers from defaulting on their loans. It’s important to bear in mind that both your business and your personal financial history will be thoroughly vetted in order that your lender can be sure of the level of risk she or he is taking.
In regards to the rate you can expect, they are variable as well. While there are some financing products that come with fixed rates, it’s more common for borrowers to have a range of rates to choose from. Small business owners should also be prepared for higher rates, mainly because these lines of credit don’t require collateral.
For the size of your unsecured credit line, the maximum amount will lean heavily on your personal financial history as well as your business. It’s not unusual for loans to be as small as $1,000 and as large as $500,000. It’s best that you try to build up your personal and commercial credit as much as possible before applying for a line of credit, secured or otherwise.
Take a look at your current and future business goals to determine which lending option is best. Don’t hesitate to contact a financing professional to reach the best decision for your finances and goals.