Unsecured vs Secured Business Lines of Credit
When starting a new business, there is no question that you will need cash, oftentimes fast. There are many lenders out there who are ready and eager to help you finance your new business with various lines of credit. With the options of lenders, however, comes the choice of financing as well. Do you go for a small business loan or asset based lending? Do you choose factoring or a simple line of credit? Taking out a line of credit for your new business, or to help it get back on its feet, is a smart way to go as it gives you the stream of funds right away so that you can draw off of them as needed.
In terms of a line of credit, there are two options to look at: secured and unsecured. Which one is right for your business? With secured lines of credit, you are basing the lending around a tangible object. You are, in a sense, securing both your loan and your lender’s peace of mind with something valuable that you own. This could be your actual business location to company vehicles to personal property.
The secured option is advantageous because it is often given at significantly lower interest rates, which saves you money in the long run. Lenders are often willing to lend more money to someone interested in a secured loan because they have the collateral to guarantee a payout of some sort, whether or not the line of credit is repaid. The disadvantage to that is that if you are unable to pay back the loan, you then face losing your property to the financer.
Unsecured lines of credit can be looked at similarly to a credit card. With no collateral or property to secure the loan, those with good credit can easily get an unsecured credit line. While generally easy to apply for and receive, these types of loans will come at a price. The biggest disadvantage is that the interest rates for the unsecured variety are often much higher than their counterparts. This means they come at a larger cost to you without the added benefit of receiving more funding for your business.
With the many variations of lending today, there are countless options and factors to consider. Secured and unsecured lines of credit are a great option for small business owners with their flexibility in when funds are taken out and their repayment schedules. When looking to apply for either of these possibilities, make sure to look at the terms and conditions and then go with the lender who is right for you.