The Unsecured Business Line of Credit [2019 Guide]

This post was originally published on May 17, 2019, and has been updated to include more information about finding the best financing option.

For aspiring entrepreneurs and business-owners with quality products or services, collateral is often essential for launching new ventures or expanding existing ones. However, there are options to help business owners receive an unsecured business business line of credit with no need for real estate collateral. Freedom comes in the form of unsecured business financing.

What is an Unsecured Business Loan?

There are plenty of alternative financing options that don’t require collateral at all. One of the fastest and most convenient funding examples is an unsecured business line of credit.

With no collateral requirements, you don’t have to risk losing your car, home or business. And with the added convenience of flexible terms, low rates, and huge amounts, unsecured financing through National is the perfect option for business owners with open-ended funding needs.

What is an Unsecured Business Line of Credit?

An unsecured business line of credit is a type of loan that is not backed by real estate collateral. This is a precarious loan for traditional lenders including banks, but a low-risk one for the borrower. For those with limited personal or business assets, or those more at risk of foreclosure, unsecured business loans and lines of credit are the ideal choice of financing.

Unsecured business credit lines work exactly the same as a regular revolving business line of credit. You get a maximum amount that you can draw any amount from at any time, and repay when and how much you see fit. With an unsecured business line of credit, you only pay for exactly the amounts you use.

How a Revolving Unsecured Business Credit Line Works

To best illustrate the process, here’s an example scenario of a business owner using an unsecured business LOC:

• A business owner receives a line of credit with a typically high capital limit.
• They can draw however much they want from the total amount of capital, which through National typically caps off anywhere between $10,000 and $5mil.
• You can draw from this line of capital whenever they want, and as often as they want.
• Once you take out a certain amount of capital from your unsecured credit line, you only have to repay the capital you owe for that exact amount. For example, if you have a $100,000 credit maximum, and you take out $10,000, you are only obligated to pay back the $10,000 for your payment cycle. This is a key differentiator between an unsecured small business loan and an unsecured business credit line.
• Once a borrower repays the amount they took out, this amount is immediately added back into their business line of credit, and so becomes available to withdraw again. To follow the above example, once the borrower takes out $10,000 from their $100,000 credit line, $90,000 is left for the borrower to draw from. Once the $10,000 is repaid, it will be automatically be added back into the line of credit, restoring the borrowers full balance of $100,000.

Why Choose “Unsecured” Financing?

When small business owners are seeking funds for their businesses, they usually require the money as quickly as possible. Small business owners who seek to use an unsecured business line of credit and unsecured business loans do so for a variety of reasons.

Perhaps a key piece of equipment needs immediate replacement, or your firm has outgrown its startup location and a new headquarters is a must. These financial needs can be funded very quickly due to the fact that National, as the lender, is not underwriting any collateral such as real estate, machinery or equipment.

What’s the Difference Between Unsecured Business Loans and Lines of Credit?

Basically, similar to an unsecured small business loan, an unsecured business line of credit is a financing option that is not backed by any kind of collateral. A business line of credit generally works pretty similar to that of a typical loan, in that a predetermined amount of money is given to a client, which they pay back to a lender over an agreed amount of time along with a small amount of interest.

However, this is where the similarities between an unsecured line of credit and a loan end. Unlike an unsecured small business loan, in which the borrower repays a set amount in relation to the total amount of capital borrowed, with a business line of credit, clients only pay for what they use.

Instead of fixed payments typical with unsecured business loans, paying back and refueling your unsecured business credit line is extremely flexible – you pay back on your own terms, how you see fit!

Comparing Unsecured Lines of Credit and Other Financing Options

Wondering if an unsecured business line of credit is the best option for your business?

If you want easy access to working capital and don’t have collateral (or would prefer not to put your assets up), then it’s a no brainer. You only pay for what you take, so you’re not committing to taking out a substantial amount.

Instead, you’re getting access to a large amount—without putting up any assets—which you can draw from as you need. You can use it to fund growth expenses, cover sudden expenses, make payroll, and more. As you need more cash, you can simply draw from it.

If you’re unsure how much cash you’ll need or use, and flexibility is your priority, then a line of credit is the way to go.

If it’s not, though, you can get financing through other options.

The best option isn’t always straightforward. Instead, you need to take into consideration exactly what you’re hoping to accomplish.

Unsecured Line of Credit Vs. Business Credit Cards

Business lines of credit aren’t exactly the same as business credit cards, but they do share some similarities, especially when it comes to flexibility.

In simple terms, you can use a business credit card the same way you would a line of credit—to pay for expenses without cash upfront.

However, you don’t enjoy the same freedoms with a credit card. Your credit limit is generally far lower than your line amount, meaning you can’t use it to cover long-term business improvements. Credit cards may also have higher interest rates and annual fees. Cash advances, which allow you to obtain cash immediately, also have high fees.

Unsecured Line of Credit Vs. Term Loans

While both options offer financing, only lines of credit offer top-notch flexibility.

Unlike a line of credit, a term loan would give you the entire amount of cash upfront. You’re responsible for paying that back based on a set, pre-determined schedule. 

Because of this, term loans aren’t the ideal option if you’re unaware of your upcoming expenses.

However, a term loan may be the better option if you’re certain you need a larger amount of cash. A short term loan might be the best choice if you’re putting the funds toward an expenses that will generate revenue.

8 Key Differences Between Unsecured Loans and Credit Lines

Which Type of Unsecured Business Credit Line is Best for You?

For small businesses seeking financing, there are two main types of unsecured business lines of credit one needs to consider: traditional and non-traditional (alternative). So how do you determine which one is the best choice for your business?

Traditional Unsecured BLOCs

The traditional unsecured business line of credit issued by a bank requires a substantial amount of documentation to qualify. This documentation includes financial statements, personal tax returns, business tax returns, bank account information, business registration documents, and more, depending on the lender.

Once a traditional credit line has been issued, an annual financial review is required to maintain the line of credit. A traditional credit line offers various benefits such as check-writing privileges. However, it tends to be the most difficult line of credit for borrowers to obtain and to maintain.

Alternative Unsecured BLOCs

National is an alternative lender. We are not a bank and therefore do not have as many restrictions.

Our lending criteria is more “user-friendly” and our loan approval and processing is fast (applicants typically receive unsecured funds in as little as 24 hours).

We extend small business lines of credit to over 90% of the applications we receive even if their banks have turned them down. A non-traditional unsecured small business line of credit can be an essential funding tool for any business to have in its financial arsenal.\

Risk Assessment of Unsecured Business Financing

This is a precarious loan for the lender, but a low-risk one for the borrower. National seeks to establish long-term financial relationships with each of our clients.

We know that to stay in business you must grow your business, and that tomorrow’s success is founded on today’s financial business relationships you can depend on for funding whenever you need to take your enterprise to the next competitive level.

National’s business lines of credit are flexible, fast and dependable. If your business could benefit from an unsecured business line of credit, know that we can not only provide the funding you require, but also provide sound and professional business advice you can depend on based on years of experience and millions of dollars lent to small businesses just like yours.

What Does Unsecured Funding Have to Do with Risk?

Because in the context of business financing, the terms “secured” and “unsecured” refer to collateral.

With a secured line of credit, you must pledge assets that become property of the lender if you default on loan payments. With an unsecured line of credit, you don’t have to pledge anything, and so your assets are safe in the event of a default.

Now that we’ve cleared this up, let’s look at four scenarios where you may find it necessary or beneficial to get an unsecured line of credit vs. a secured line of credit:

4 Reasons to Get Unsecured Instead of Secured LOCs

1. If you don’t have enough collateral. The simplest reason why an unsecured line of credit may be suitable for you, is if you don’t have enough collateral to satisfy a lender. By definition, a secure line of credit requires collateral so without enough assets to get approved, an unsecured line of credit is a great option to get the funding you need.
2. If you don’t want to pledge your personal and/or business assets. For a variety of valid reasons, you may not want to pledge your personal and/or business assets – which means that an unsecured line of credit is your better option.
3. You don’t want to have your assets undervalued by a lender. Banks that offer secured lines of credit (as well as secured business loans) are notorious for undervaluing collateral. For example, industrial equipment that may be worth $50,000 in the marketplace might be valued at $40,000 or even $30,000. Banks do this to reduce their risk threshold even further. For borrowers, however, it means that they need to pledge more assets than they should – which adds to their risk.
4. You want a line of credit quickly. Last but certainly not least: a secured line of credit can take months to materialize, since the application has to snake its way through multiple loan officers and managers – plus there’s the time consuming collateral evaluation process that we just discussed. An unsecured line of credit application is a much simpler to process, and on approval the funds can be available to you right away.

What Can You Do with an Unsecured Business Line of Credit?

When small business owners are seeking funds for their businesses, they usually require the money as quickly as possible. Small business owners who seek to use an unsecured business line of credit and unsecured business loans do so for a variety of reasons, including:

• Hiring more more staff
• Replacing or upgrading a key piece of equipment
• Expanding or relocating your building
• Make spontaneous and ongoing purchases to take advantage of unexpected opportunities
• Resolve issues in cash flow due to seasonal dips in sales or slow customer payments (this is especially useful for manufacturers, distributors, retailers and even medical/healthcare and dental practices).
• Or if your firm has outgrown its startup location and is in desperate need of new headquarters.

Unsecured Business Line of Credit Requirements

To get an unsecured business line of credit, there’s not many things you need to do. Here’s all you need to get one through National:

3+ Months in Business

We offer business credit lines to all companies that have been in business for over 3 months.

$120,000 in Annual Gross Sales

Whether you do $120,000 or $12,000,000 in sales, we got your back!

No Minimum FICO Required

You don’t need to have amazing credit to qualify for a business line of credit—we work with ALL credit profiles.

Get an Unsecured Business Line of Credit with Bad Credit

To borrow an unsecured business line of credit, you often need to have an excellent credit history. This is not a loan requirement with National. Since we are not affected by banking industry restrictions, we can offer many alternative financing options to small business owners.

No matter what your credit history it may be possible for you to obtain an unsecured business loan. Getting an unsecured business line of credit is but one of many options for business owners who apply through National.

Why Choose National for Unsecured Financing?

National seeks to establish long-term financial relationships with each of our clients. We know that to stay in business you must grow your business, and that tomorrow’s success is founded on today’s financial business relationships you can depend on for funding whenever you need to take your enterprise to the next competitive level.

National’s business lines of credit are flexible, fast and dependable. If your business could benefit from an unsecured business line of credit, know that we can not only provide the funding you require, but also provide sound and professional business advice you can depend on based on years of experience and millions of dollars lent to small businesses just like yours.

Choosing National means you will have no upfront fees, lightning fast 24-hour approval and efficient service that is delivered with a personal touch. The approval process for unsecured business finance is based on the overall picture; financial setbacks are not grounds for immediate loan disqualification.

How to Apply for an Unsecured Business Credit Line

Fill out our 1-minute application here to get started, or give us a call at (877) 482-3008 for more information on an unsecured business line of credit and unsecured business loans, and to receive answers to your questions about securing an unsecured business line of credit and unsecured business finance.