Starting a business can be a daunting task, especially when it comes to financing. Securing funding is often the biggest challenge that entrepreneurs face when starting a business. Traditional bank loans can require collateral, especially if the business owner has average or poor credit. which can be difficult for startups to provide.
This is where unsecured business lines of credit can be helpful. In this article, we will talk about how to obtain an unsecured business line of credit whether you have good credit or bad credit.
What is an Unsecured Business Line of Credit?
An unsecured business line of credit is a type of financing that allows a business to borrow money up to a predetermined credit limit without requiring collateral. Unlike traditional loans, unsecured business lines of credit don’t require the borrower to put up assets as collateral, such as property or equipment, to secure the loan.
These lines of credit are easy to obtain if you have a personal credit score of 720 or above. Having good credit is essential for this type of financing.
So what to do if you have bad credit? Read on and we will cover that shortly.
How Does an Unsecured Business Line of Credit Work?
An unsecured business line of credit works like a credit card. Once approved, a business is given access to a line of credit, which they can draw from as needed. Interest is only charged on the amount that is borrowed, not the total credit limit. The credit limit and interest rate are determined by the lender based on the business’s creditworthiness and financial history.
Benefits of an Unsecured Business Line of Credit for Startup Businesses:
- Flexibility: An unsecured business line of credit provides a business with the flexibility to borrow funds as needed, without having to go through the process of applying for a new loan each time.
- No Collateral Required: Since no collateral is required, startup businesses can access funding without having to risk valuable assets.
- Builds Credit History: By obtaining an unsecured business line of credit you can start building a positive credit history, which can help them secure additional financing in the future.
- Lower Interest Rates: Compared to traditional loans, unsecured business lines of credit often come with lower interest rates, making them a more affordable option for startups.
- Improve Cash Flow: Having access to an unsecured business line of credit can help a startup business manage their cash flow and cover unexpected expenses.
How to obtain an unsecured business line of credit when you have bad credit
Unsecured lines of credit are a great way to finance your business. But since they are unsecured, many banks will not offer them to people with bad credit.
But there is a way around this!
You need to focus on building your business credit. To get started, you will need to incorporate your business. You can form a LLC or an Incorporation.
Once you have formed your company you need to get an EIN number for it from the IRS. This is free to do and you can do it online.
Once you have your EIN you need to start applying for credit using that EIN and build your credit history. Just as you would with your personal credit.
Here is the thing to keep in mind. Your business credit is completely SEPARATE from your personal credit! So you can have bad personal credit and still have EXCELLENT business credit! You can obtain an unsecured business line of credit using your business EIN once you have built up sufficient credit using your EIN.
But building it on the business credit reports which are Experian, Dunn & Bradstreet and Equifax are the main business credit bureaus. A new company called CreditSafe is quickly becoming another good place to build your business credit.
Building your business credit isn’t difficult. It just requires that you create relationships with vendors that will charge your business and report your payment history to the business credit reports.
Many of these companies will give your company net 30 terms. Which means you must make the payment within 30 days.
If you need help building your business credit, check out our DIY video course on how to build business credit fast!
Conclusion:
Startup businesses often face many obstacles when it comes to financing. An unsecured business line of credit can provide a flexible and affordable solution for funding needs without requiring collateral.
With the ability to borrow funds as needed, build your business credit history, and improve cash flow, unsecured business lines of credit are a valuable tool for startups looking to grow their businesses.
