Unsecured business credit line – hidden facts to be known
Business credit line is also known as a revolving line of credit which is a type of loan, that is provided by banks to various business firms. The main motive of the business line of credit is to provide flexible loans without any collateral. The business can use this loan amount as its working capital. It can also be very useful If the business firm wants to expand their business.
As the banks or various other financial institutions provide loans without any collateral, that is without keeping any asset with them they provide loans. This condition makes the loan unsecured. There could be chances that the business firm could not perform well and suffers losses, the loan amount could not be recovered.
Interesting facts to be known
Unlike other loans, a business firm has to pay interest only on the amount that is been borrowed and not on the amount sanctioned. Although the interest rate of loans is quite is high. The reason is that they provide unsecured loans. Still, most business firms prefer unsecured business credit line to other traditional business loans because the overall process of the loan is quick, easy and hassle-free.
Another advantage of the unsecured business credit line is that business firms don’t have to pay any prepayment penalties. The time taken for sanctioning the loan is very less, it hardly takes one to two business days to deposit funds into your bank account.
Why choose an unsecured business credit line
Many business owners like to secure their business finance without putting the company’s assets on the line. Even the business that has just started more preciously known as startups don’t possess any kind of asset with them, that a lender would like to accept. If your business falls under any of these categories then an unsecured business credit line could be the best solution for your financial problems.
An unsecured business credit line can be also termed a business credit card account. From where you can borrow a limited amount of money and, and pay interest for it then again you can borrow against the same line of credit in the future.
The borrower has less risk as compared to the high risk of the lender. To equal risk management, lenders often charge a higher rate of interest and fees. They also give a limit up to which you can borrow the money. They often offer a less period for the settlement of the loan. Moreover, as the borrower don’t provide any collateral, the lenders or the banks may ask for a personal guarantor.
Even after imposing these many conditions, we can term unsecured business credit lines like a bad choice for any business firm. Before taking a decision you must see all the advantages and disadvantages of it.
There are many reasons you should go with it. A business line of credit can be very helpful for your business when your business needs an excessive amount of cash to cover various business expenses. By taking a regular business line of credit you establish good business credit, which is very helpful while taking loans in future.