What is an Unsecured Business Line of Credit?
An unsecured business line of credit is a type of revolving debt that can be obtained without pledging collateral to a lender. All type of credit lines—including business credit cards, personal credit cards, and personal lines of credit are revolving debt. Once obtained, you can have access to them for the life of your business or as long as the lender wants to continue their relationship with you. This is one of the biggest benefits of having an unsecured business line of credit (versus a term loan).
Term loans (like unsecured business loans and general small business loans) are not ongoing. Once the loan has been paid back, you have to reapply for another loan and there is no guarantee you will be approved again. Term loans may have lower interest rates, but unsecured business lines of credit have a longer lifeline. Ongoing access to working capital will be necessary for most small business owners to maintain their business.
How Do I Get Approved for Unsecured Business Lines of Credit?
If you want to qualify for an unsecured business line of credit, you should first understand what your options are. There are different types of unsecured business lines of credit. To get approved for each type, you must meet certain criteria. Knowing what criteria unsecured business line of credit lenders want you to meet will help you determine if you qualify to get approved. LenCred helps startup and established business owners obtain financing for their businesses. A critical part of the LenCred financing process is helping business owners understand their funding options based on lender requirements. Another critical part of the process is identifying the criteria that must be met by borrowers to get approved.
A well-established personal credit history is needed to get an unsecured business line of credit. As a rule of thumb, your personal credit history should be at least five years old. You should also have at least one personal credit card in your name (with at least a $5,000 credit limit). The personal credit card should be at least one year old. Lenders will want to see that you can manage credit card debt over time before they will approve you for an unsecured business line of credit. That’s why it’s important to have a personal credit card in your name for a period of time before you apply for an unsecured business line of credit. If you’ve never had a personal credit card in your name, you likely won’t qualify for an unsecured business line of credit.
Total Credit Utilization is Important
If the personal credit card you have in your name is over 30% utilized, you will be denied for an unsecured business line of credit. It’s wise to keep the amount of the personal credit card you use under 30% of the total available credit limit. For example, if you have a $10,000 personal credit card in your name, it would be wise to use no more than $3,000 of it. Anything over that amount would increase your utilization over 30% and lenders will see it as you’ve maxed out your credit cards. You will need to pay the balance down to qualify for an unsecured business line of credit (and any new personal credit cards you want to apply for).
Avoid Late Payments or Not Paying Your Bills at All
In addition to keeping your credit card usage low, you can’t have any derogatory or delinquent accounts reporting on your credit profile. Late monthly payments, collections, unpaid tax liens, repossessions, and bankruptcies will get your application for an unsecured business line of credit denied. You also can’t have a lot of recent hard inquiries (in the last six months). Hard inquiries happen when lenders pull your credit report for the purpose of making the decision to extend you new credit. The best way to get approved for an unsecured business line of credit is to maintain a good credit history and higher than average credit score.
If you qualify for an unsecured business line of credit, LenCred can help you get approved at the lowest interest rates possible. The majority of LenCred clients get approved for unsecured business line of credit with 0% introductory interest rate offers. To learn more about unsecured business lines of credit and how LenCred can help you get up to $50,000 or more for your startup or established business, pre-apply now or continue reading.