What exactly is an unsecured business line of credit used for? Most lending institutions now offer a line of equity along with a corresponding line of unsecured business credit. These are both the most common forms of unsecured business credit lines:
An unsecured business line of credit or a revolving credit line is a lending facility available to businesses who wish to receive advances based on their future cash inflows. The lending institution is not concerned with any credit history, current or preceding, of the business.
The only requirement is that the business meet some basic criteria: it must have regular and predictable cash inflows; it must be in operation for a period of one year to three years; and it must be able to provide collateral, typically a property, that the lender can retrieve its loan amount from in case the business fails to meet the requirements. These requirements often include meeting sales and inventory requirements. A business may also be eligible for a low interest rate, as well as a zero percent introductory balance transfer fee.
When a business applies for an unsecured business line of credit, it generally accepts either assets or accounts receivable as collateral. Business owners then authorize the lender to use its secured credit line to make advances against their respective accounts. This system allows both businesses to obtain funds when they need them, without worrying about potentially losing their underlying collateral.
Unsecured business credit cards are available through a number of financial institutions. Many of these companies offer these business lines on a cash advance basis, which means that the business has to pay no interest while it makes its payments. If it makes its payments on time, then it is eligible for a zero percent introductory balance transfer fee. It may also qualify for a low fixed amount to be applied towards future purchases.
These types of financing options are great for businesses that are seasonal in nature because they do not require collateral to secure them. A rotating loan facility may allow a business owner to take advantage of seasonal increases in demand for his or her products. Businesses that are taking advantage of this option should keep track of their sales and purchases so they can accurately predict their revenues. This information allows a business to accurately plan its finances and meets the requirements of the IRS.
Business owners who are looking to obtain an unsecured business line of credit should research the options available from a number of lenders. Interest rates and terms can vary dramatically from one company to the next. It is important that consumers understand the basics of these loans so they can choose the best options for their needs.