Before you dive in:
- Should I choose an unsecured or secured option?
- How will I manage the repayment schedule?
- What do I need to show to secure funding?
- How much funding do I require?
What is an Unsecured Business Line of Credit?
An unsecured business line of credit is also called a LOC
(Line Of Credit) and a revolving line of credit. With a business line of
credit, you can borrow up to a predetermined sum of money. This sum is called
your credit limit.
Here are key facts about how a LOC works:
- You only pay interest on the amount of money you borrow
- You don’t pay prepayment penalties, but there is no
interest-free grace period
- You could incur monthly or annual fees, including when you
are not actively lending money against your business line of credit
- LOC can be deposited straight into your bank account,
permitting you to work with a creditor that doesn’t work with credit cards
- Typically, there are no fees for cash-advance
- You might have to wait one business day for the LOC money
lender to deposit the money into your account
Unsecured vs. Secured Business Line of Credit: What’s the difference?
There are major differences between a secured and unsecured
business line of credit, including fees, requirements for approval, and
interest rates.
An unsecured line of credit - also referred to as a
revolving line of credit, or simply LOC. A business does not have to put up any
collateral for approval. However, it likely means a higher interest rate.
A secured line of credit - you need to provide collateral
for lenders to approve you, meaning the lender can take your collateral in the
event of non-payment. Collateral is something given as security for the
repayment of a loan, which is handed over if loan payments are not made. Common
collateral requirements might include real estate, equipment, or vehicles.
How does an Unsecured Business Line of Credit Work?
Here are two key features of an unsecured business line of
credit:
- You pay interest on the amount you use and not on the sum
available
- The loan automatically reverse to the original loan amount,
in keeping with the amount you payback
Here is an example of how this works:
If a lender grants you a $200,000 line of credit, and you
use $100,000 and return $20,000 each month, then at the initial month of
repayment, you will have $120,000 to use, and the following month, $140,000 the
trend continues.
Unsecured Business Line of Credit Requirements
The process of applying for an unsecured business line of
credit involves submitting documentation, answering questions about the
business, and possibly providing personal information. Once approved, a
business can borrow against the credit line and pay back the amount with
interest and fees.
Each lender has a specific set of business line of credit
requirements for both the application and approval process. Generally, it
involves a detailed snapshot of the business history and financials.
Here are details lenders will look at:
The date you established the business - although each lender
is different, most require your business to have been established for at least
six months.
Credit scores - including the business credit score,
personal, or a mix of both.
Annual business revenue - a lender may ask you to verify
your business earnings via tax documents or other financial statements.
Review of credit reports - these will be used to determine
the creditworthiness of your business.
Business bank account - provides lenders with information,
including if you have bounced checks, positive or negative cash flow, and the
average daily balance.
How Businesses can use Unsecured Business Line of Credit
An unsecured business line of credit is flexible and is
ideal if you don't know how much funding you will need.
Here are common examples of how to use an unsecured business
LOC:
- Purchasing equipment
- Fast cash
- Unexpected expenses
- Make payroll
- Expand or relocate your headquarters or building
- Acquire real estate
- Purchase inventory
Before you decide how your business could benefit from an
unsecured LOC, consider the lender's interest rate, fee schedule, and credit
limit. You might also want to look into business line of credit vs loan option for your business.
5 Top Unsecured Business Lines of Credit Lenders
1. Fundbox
For U.S.based businesses with at least $100,000 in annual
revenue and a 600+ FICO score, Fundbox may be a top consideration for an
unsecured LOC. If approved, Fundbox will typically provide access to the LOC
within one business day.
Fundbox has two repayment terms: a 12-week or 24-week term,
plus competitive business line of credit rates. You need to repay the amount
borrowed weekly, which Fundbox will automatically debit from your business bank
account.
Fundbox will charge you both weekly fees and interest fees.
However, if you repay the loaned amount within three days, you will not charge
fees.
Read more about financial solutions offered by Fundbox in our Fundbox expert review.
2. BlueVine
BlueVine has a quick approval process, generous line of
credit amount of up to $250,000, and no monthly fees. Unlike most other lines
of credit, there are no prepayment penalties, monthly maintenance, or account
closure fees. Your business must have a minimum of $10,000 in monthly revenue
and have been established for at least six months.
BlueVine offers a revolving credit line, which means you
withdraw what you need when you need it. Borrowers will pay back funds after
each withdrawal via fixed monthly or weekly payments over six or 12 months.
Learn more about BlueVine in our comprehensive review of this brand.
3. Kabbage
American Express backs Kabbage. Kabbage offers lines of
credit ranging from from $2,000 to $250,000, and there are no origination fees,
annual costs, or monthly maintenance fees. However, there is a fee when you
withdraw funds or have an outstanding balance for over a month.
Kabbage offers repayment terms as 2-9% for 6-month loans, 4.5-18% for 12-month loans, 6.75-27% for 18-month loans. Once Kabbage connects to your business checking account information,
it can offer approval in a timely manner.
Visit our Kabbage small business loans review to find out more.
4. OnDeck
OnDeck offers revolving credit lines ranging from $6,000 to
$100,000. After each withdrawal, you will have 12 months to pay back the funds.
If you happen to make more than one withdrawal, OnDeck will consolidate all
payments, so you will only need to make one repayment per week.
OnDeck requires businesses to have been established for at
least a year and to have at least $100,000 in annual revenue. Account-holders
will have access to funds 24/7 - including on nights and weekends - and within
seconds, making this a highly flexible option.
Learn more about this online lender in our detailed OnDeck review.
5. Credibly
Credibly is suitable for businesses with lower annual revenues
or a lower credit score. It can be viewed as a business line of credit for new
business. Credibly requires a business to have $50,000 in annual revenue and a
560+ personal credit score.
If you are applying for a credit line of over $100,000, you
will also need to provide a copy of your latest business tax return. Credit
lines with Credibly are available for up to $250,000 and may require an
origination fee when establishing the LOC.
Check out our Credibly online loans review to find out more.
Final Thoughts on Selecting an Unsecured Business Line of Credit
If you are a business owner who doesn’t want to risk their
collateral but requires funds to keep their business afloat, an unsecured
business line of credit may be a suitable solution.
By selecting the best business lines of credit lenders, such
as Fundbox, which offers quick access to funds and flexible repayment terms,
your business can get the boost it needs to accelerate its growth.
