A business line of credit can be one of the most valuable tools for maintaining regular cash flow, and guarding against interruptions that could prove damaging to your business. A business line of credit can be used for a wide variety of business purposes, which makes it ideal for filling in potential cash flow gaps. There are two different types of business lines of credit, a secured line of credit and an unsecured line of credit, and each has its advantages and disadvantages.
Secured line of credit
In a secured line of credit, there is always some type of asset which is used as collateral by the lender as a fail-safe against defaulting by the borrower. When the borrower fails to repay the money used on a business line of credit, the asset can be seized in lieu of the cash value which was defaulted on. Most lenders prefer issuing a secured line of credit with business owners, because there is some degree of certainty in recovering their investment when the borrower defaults. Contrarily, most business owners would understandably prefer not to jeopardize their business assets.
Unsecured line of credit
Just as its name suggests, there is no collateral involved in an unsecured line of credit. That means it’s a much greater risk for the lender, and for that reason it’s very likely that there will be a higher interest rate imposed on an unsecured line of credit. It’s also more than likely that any business which applies for an unsecured line of credit will have to be in operation for several years and must have demonstrated a strong financial history. In addition, the business and the business owner will both have to have good credit history, so that the degree of risk can be reduced somewhat for the lender.
Unsecured line of credit with Flex Capital
A business line of credit may be just what your small business needs in order to maintain steady cash flow, and manage business expenses better. Contact us at Flex Capital to inquire about an unsecured line of credit, and whether your business might qualify for this valuable financial tool.