How an Unsecured Line of Credit Can Work for You

As is the case with many small businesses, having an open line of credit is a must in order for a company to succeed.  There are many different options for financing a company and one of those options is an unsecured line of credit.  Applicants with good credit are typically able to use their personal credit history to obtain a line of credit for their company. 

How it works is that instead of offering up something you own as collateral for the credit, such as a house or a car like a secured line of credit would, you simply are charged a fee.  When you begin receiving the line of credit, you will be charged a pre-set annual fee in place of collateral. 

One major benefit of having an unsecured line of credit is that you are able to borrow more as needed and pay it back whenever you are able to.  This can benefit small businesses greatly because as long as you continuously pay it off when you can, the money is always there.  This can help you fulfill purchase orders and pay bills while you wait for your receivables to be converted into cash on hand.  Another benefit of a line of credit is that they typically have a better rate than a credit card would offer.

While having an unsecured line of credit can be great, it is not going to be a solve-all to your company’s money problems.  Typically with unsecured lines of credit, the risk of default is high so lenders protect themselves by limiting the amount one person can borrow.  If you make consistently pay off your balance, your credit amount will go up.  Ensuring your company never borrows more than you can pay off is one way to increase your company’s limits.

Unsecured lines of credit can be very beneficial for companies that have money in their receivables that will shortly be turned into cash.  It provides cash on hand that you know can be paid back on time.