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Alternatives To Unsecured Business Lines Of Credit

Aug 17, 2007
Unsecured business lines of credit are the most difficult form of credit to be obtained from a bank or financial institutions. Applicants of these loans have to meet many criteria such as having been in business for a minimum of one year, having a credit score of more than 680, and having a good credit history and profile. Nearly 90% of all such loan applications for unsecured lines of credit are rejected. However there are alternatives to unsecured business lines of credit.

Short Term Bank Loans
Most of these short-term loans do not require collateral and are unsecured. Their duration may vary from 90 to 120 days or 1 to 3 years. Banks are very specific about repayment plans and will grant loans only after they have scrutinized the cash flow history, payment record, credit score, and profile. Although the rate of interest is fixed, you will pay less since the interest is repaid quickly.

Secured Business Line of Credit
A secured business line of credit is a far better alternative, as the interest rate is considerably lower. Hard goods such as equipment, real estate, stocks, bonds, other personal assets, personal guarantees and assets owned by the business are given as collateral. Up to 10 times more credit can be obtained than in the case of an unsecured line of credit owing to the collateral that has been pledged. Most small businesses prefer the higher credit limit and flexibility that a secured line of credit offers.

Equipment Sale Lease Back
If the business owns any equipment worth more than $10,000, it can be sold to the creditors and leased back. This kind of loan gives the business the amount of cash it needs and they make a token payment as lease for the equipment.

Merchant Account Cash Advance
This is another alternative to unsecured business lines of credit. If credit cards such as VISA/ MasterCard are used by the business for at least 6 months, they can get a cash advance based on their monthly volume of charges. The only perquisite is no history of bankruptcy in the last 3 years.

Home Equity Loan
The business owner may use their home as collateral and secure a home equity loan. In this case the business owner takes the risk of losing the home as well as the business if the loan is not repaid on time.

Long-Term Bank Loans
These loans last for 3 to 7 years and repayment is made on an installment basis. The interest rate is fixed and lower than that of a short-term loan.

Industry Specific Loans
Another alternative to unsecured business lines of credit, this type of loan is specific to the industry in which the company operates. An example is a pollution control loan for businesses that design, build, install, or service pollution control facilities.

Make an Informed Decision
Once you've determined the amount of cash need, examine all the options and study what kind of a loan best suits your needs, knowing exactly how to make the best use of the loan. Have a repayment plan ready and work towards a debt-free life with hard work and determination. A high interest loan, such as, an unsecured business line of credit may be more costly than you bargained for. Several companies offer excellent software packages to help manage the financial aspect of your business, making the task of running the business and maintaining records a fairly easy job.
About the Author
David Gass is President of Business Credit Services, Inc. His company publishes a free weekly e-newsletter on Small Business Consulting at their
web site http://www.smallbusinessconsulting.com
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