What are the Advantage of an Unsecured Line of Credit?
When you are seeking financing for your business, it’s important to select the right funding option for your short- and long-term goals and objectives. One choice you have is whether to seek a secured or unsecured line of credit for your financing. Understanding what an unsecured line of credit is and its advantages can help you decide whether it is a good fit for you.
What is an Unsecured Line of Credit?
An unsecured line of credit is one that does not use an asset as collateral for the credit. Collateral is often used as a guarantee for payment. That is, if the borrower does not pay, the collateral is kept by the lender. Unsecured lines of credit can be riskier than secured lines of credit because the lender has no guarantee that the borrower will make necessary repayments. As a result, these lines of credit generally have stricter approval requirements, including a higher credit score. This helps alleviate the risk to the lender that comes from a lack of collateral. In addition, the unsecured line of credit may have stricter repayment terms in comparison to secured lines of credit, which can help ensure the lender gets their money back.
What are the Advantages of an Unsecured Line of Credit?
There are a number of benefits to an unsecured line of credit, particularly for businesses. Some of these advantages are:
• Easier to obtain due to lack of collateral
• No collateral to put up, freeing assets for other uses
• Unsecured lines of credit may be discharged if you file bankruptcy
Whether you are looking for a short-term financial boost or a long, structured loan to help you achieve your future goals, unsecured lines of credit can be an effective path to financing for your organization. Once you understand unsecured lines of credit, you can determine whether they match your business financing needs so you can take the next steps in your plan to getting funding.