An unsecured business line of credit is a special kind of loan issued by lender which is not backed by any form of collateral. Given the fact that there is no collateral involved, it is a much riskier business transaction for the lender, since the borrower could default at any time. However, it’s generally a lot more difficult to obtain an unsecured business line of credit for that very reason, because lenders are somewhat reluctant to issue them. If you are able to obtain an unsecured business line of credit, it will work exactly like a secured line of credit, although you will probably have a lower credit limit associated with the account.
How It Works
You should be aware that any unsecured business line of credit will always carry a higher interest rate, and will generally involve shorter repayment periods, as well as lower credit limits. This is to offset some of the risk assumed by the lender, and to help them recover more of their loan sooner. Once you are approved for an unsecured business line of credit, you’ll be able to draw on that line anytime you want, for any business purpose whatsoever.
When you do draw on the line of credit, you only have to repay the amount that you have withdrawn from your account. By making payments on those withdrawals, you are actually restoring your credit line to its original credit limit. In this way, you can continue to withdraw sums of money and repay them indefinitely, as long as you don’t withdraw a total amount equaling your credit limit. If you do happen to make withdrawals up to the amount of your credit limit, you will no longer be able to use your business line of credit, and you will be obliged to make payments on it until you have a usable balance again.
Would Your Company Benefit By a Business Line of Credit?
Most companies would benefit tremendously by having a business line of credit, simply because of the tremendous flexibility it provides. Contact us at First Source Capital, so we can discuss the possibility of applying for a business line of credit.