A secured business line of credit is where you put up collateral, such as inventory, property, or accounts receivables, in exchange for financing.
An unsecured business line of credit doesn’t require any collateral or assets. Instead, lenders will look at your business financials and other factors.
Some lenders, such as banks, may require collateral if you’re seeking a large amount of financing, or if you’re lacking in qualifications.
Lenders view secured business lines of credit as less risky than unsecured lines of credit. The reason behind this is simple – if you fail to pay back your secured line of credit, lenders can seize your assets.
If you agree to collateral or a lien, your assets are at potential risk. This becomes especially dangerous if you’ve agreed to a personal guarantee, which would allow lenders to go after your personal property, such as your home, if you can’t make payments.
Not all lenders will require collateral in exchange for a business line of credit. Make sure to ask different lenders about their requirements to make the best decision.
Business credit cards vs. business credit lines
Business lines of credit are similar to business credit cards. They both offer access to a set amount of funds you can draw from as you need. Nevertheless, there are major differences between these two forms of financing.
For starters, business lines of credit feature higher credit limits than credit cards. They also make it a lot easier to access cash. Although you can withdraw cash from your business credit card, you’ll most likely be charged additional fees or a higher APR.
Aside from a 0% introductory period, business lines of credit usually feature lower interest rates than credit cards. Business lines of credit also typically come with fixed interest rates while credit card interest rates are variable, and can change according to market conditions.
However, business credit cards come with favorable rewards or cashback programs. For these reasons, you’ll want to use your business credit card to manage everyday, smaller expenses, such as office supplies, meals, travel expenses, or any other category that offers rewards.
On the other hand, a business line of credit is best suited for larger, ongoing expenses or as an emergency fund.
How can I get a business line of credit?
Several different types of lenders offer business lines of credit. The most common lenders include banks, credit unions, and online lenders.
Banks and credit unions typically have the most rigid lending requirements. You’ll need to have sound business financials, good credit, strong revenue, and have been in business for at least a couple of years to qualify.
On top of strict requirements, the application process at banks and credit unions can be lengthy, time-consuming, and rigorous. Younger businesses may especially have a hard time getting approved.
It can be much easier and faster to obtain financing from an online lender – especially for younger companies or those with less than perfect credit.
At National Business Capital, we maintain a platform with over 75 different fintech lenders. We have financing options for all different kinds of businesses. And we’ll work with you to help you find the best, customized solution based on your qualifications.
Ready to get started? Fill out our 1-minute application and a Business Financing Advisor will contact you shortly!