Unsecured Business Credit Line

Unsecured business credit lines are often the lifeblood of a small business. These funds are often used to expand, but, in the case of an emergency financial situation, they are often the lifeboat that literally saves the business.

Many small business owners turn to their bank for such a line; however, banks and other lenders are hesitant to extend any credit these days … let alone unsecured credit. Banks will usually require a least one year in business, a personal FICO of at least 680, and stellar credit and business plans. Sources show that perhaps over 90% of such loan applications are denied.

Traditionally, such a lending package does not require you to put up collateral for the line. While keeping your assets safe in the event of non-payment, you will still be responsible for repayment. Few lenders these days will offer you a line without at least your personal guarantee.

A credit line is an ongoing source of credit … you access it and use it as you need it. Lenders generally are not happy when you use all your line, and do not pay it back periodically. A line is easier, generally, to get than a loan.

Quite simply, your ability to receive a credit line is based on your credit score. The better your credit rating, the better the interest rates and terms will be.  If your credit history is bad, getting a traditional line will be tough if not impossible.

There are, however, alternatives to lines of credit.

The first, called an Equipment Sale Lease Back is such an option. If you currently own equipment of, say, $10,000 or more, you can sell the equipment for cash … and then lease it back! As you then start making payments for the cash you just received, it is much like a loan or line.

You need to own your equipment free and clear, and find a financing company willing to buy your equipment from you at just under fair market value. You get the cash. You make monthly payments to the finance company. The finance company makes money from charging you interest.

While doing such a deal is dependent on what kind of equipment you have, the requirements and paperwork are pretty minimal when compared to getting a loan.

Another alternative is to simply lease the equipment you need. Small business equipment leasing seems easier to get these days, because the equipment acts as collateral, and this can help free up cash for other needs of your business.

A third alternative is the merchant cash advance. If you accept credit cards, and have done so for at least 6 months, you can often get a cash advance against future credit card transactions. While not a cheap option by any means, it is a fairly straight-forward and easy to get alternative. Your credit card processing statements are reviewed, and a certain percentage of your monthly average is available as a loan. You get the cash upfront, sometimes within a week or so, and it is repaid by automatic withdrawals from your credit card sales. It is sometimes necessary to switch card processors, but not always.

As a small business owner, you probably know the importance of a readily-available source of funding. In today’s credit market, you have the option of a traditional or alternative source of an unsecured business credit line.