An unsecured business loan and a business line of credit are both viable options for business owners and entrepreneurs who need financial assistance. What are the differences between these two business financing methods? Which one is the more suited method of financing for you?
Unsecured Business Loans
For people in need of loan but do not want to submit collateral, an unsecured loan is an option. Nevertheless, the interest rates are considerably higher than those of secured loans. Most unsecured loan lenders also require a good to excellent business credit although you can find a few lenders who extend unsecured bad credit loans.
An unsecured loan is paid on a monthly basis with repayment terms ranging from 1 year to 30 years, depending on the loan amount. Although it doesn’t involve any collateral, a business owner must do his best to submit his monthly payments on time to avoid expensive late penalty costs.
Business Line of Credit
An unsecured business loan is given as a one-time, lump sum payment while a business line of credit can be withdrawn in installments. Within the loan term, the borrower can take out cash advances from his credit line as long as it doesn’t exceed the amount of his loan.
A line of credit also involves the submission of collateral. The value of your collateral will determine the total amount you can loan. Usually, the home property is used as collateral although other personal and commercial assets can be used as well. However, most business owners use their homes to secure the loan because of its high value.
What is the advantage of getting a business line of credit? This source of funding can be used to purchase new equipment or repair broken equipment, buy more stocks and supplies, hire more workers, or to sustain your daily operating costs. Because the funds can be taken out at any time without the need to apply for credit each time, it gives a business the financial assurance it needs.
Repayment often starts at the end of your loan term period. For instance, if you obtained a 5-year term, that means you can take out the cash you need at any time within that period. Payments are also submitted on a monthly basis.
Just like with business loans, your credit status can also affect the interest rates. A high Paydex score not only guarantees a fast approval of your application but also enables you to avail of the best deals.
Making the decision to get a business line of credit or an unsecured loan depends on your financial capability and your business’s spending needs. If you need a large amount of money, you may opt to get an unsecured loan.
However, if you need continuous financial support, you may consider a line of credit. Take note however, that a business line of credit is only offered for businesses that have been in operations for at least two years.
Copyright © 2008 Unsecured Loans Now
About the Author
Sandra Thompson is a loan consultant with Unsecured Loans Now and has been providing consumers and business owners with Unsecured Loans since 1989. For years she has helped people with loan and credit problems especially pertaining to Unsecured Personal Loans, Business Loans and Unsecured Credit Cards. Copyright 2008.