Secured vs. Unsecured Business Lines of Credit

A line of credit can do wonders to help grow your business and ease financial stress. When searching for the best source of credit, it is important to understand the difference between the two types. There are both secured and unsecured business lines of credit, and which one you get depends on a number of factors. Each loan has different agreements and terms, and the interest rate and amount of money that you receive will vary. One benefit of using a line of credit for your business is that, once you pay some of it back, you can continue to use it without having to reapply. You may choose to use it for bigger purchases or to help with cash flow. A secured line of credit is of lower risk to the lending institution, so it has a lower interest rate for more money. However, you do need to provide some type of collateral to help secure the loan. You can use personal collateral, such as your house, or you can use the inventory or accounts receivable of your business. You are taking a bigger risk, because if you are unable to make your loan payments, the lender now owns the collateral. The benefits over unsecured lines of credit include lower interest rates, easier attainability, and the ability to make larger purchases. If you don’t want to pledge collateral against the loan, and you have good credit, an unsecured business line of credit may be sought. Because this type is riskier to the lender, you will be charged a higher interest rate, and you will not receive as much money as you would with a secured loan. Higher loan amounts and lower interest rates are feasible once you have established a good credit history with the lender. Unsecured lines of credit are often used to solve cash flow issues, and may be used to meet payroll, buy equipment, or other expenses that come up. Along with credit history and possible collateral, be prepared to show a business plan and financial statements when applying for either type of