Last Updated on Feb 28, 2020 by James W
As businesses outgrow their current spheres, certain measures must be taken to accommodate newly defined needs. In some cases these upgrades are as simple as increasing your online networking platform. Other cases may be more complex such as having to upgrade to a bigger office or having to hire more employees and create new roles. With these more involved upgrades additional finances are needed to secure payroll and more office space.
There are several options available to business owners who are expanding in the marketplace. This article will address the option of utilizing an unsecured line of credit as an option to meet your business needs.
What is it?
In the lending world, there are two types of credit lines: secured and unsecured. A secured line of credit is backed by collateral. In most cases the businesses owner’s home or their business property is written in as viable collateral. However, an unsecured line of credit isn’t backed by collateral and therefore requires better credit from the borrower while offering higher interest rates simply because the loan is a greater risk to the lender.
Why use it?
Lenders typically offer unsecured lines of credit to those who own established companies with solid reputations or to long-time customers with excellent credit ratings. This type of loan is not easy to get approved. Lenders will carefully examine your credit history and profile, as well as your income.
Just be prepared for your life to be picked apart on paper. Advance Funds Network and other lending institutions only approve these applications if the person is regarded as a successful candidate, so if you meet their criteria, then go ahead and apply for an unsecured loan. After all, you worked hard to establish good credit, so go enjoy the perks.
Be aware of potential risks. Since your business is starting to expand, you will want to have a good solid projection of gains and earnings set in place. Your business can climb one term and drop the next. Be sure you understand the consequences of defaulting on your loan. Typically, if a business fails to pay on unsecured debts, the lender may hire a debt collector or sue you in court. These actions could have devastating consequences on your business.
Borrow from a reputable lender
The lending institution you borrow from is just as important as the load itself. After all, you will want an experienced veteran to help you expand your business growth, and not some in-house part time banker following prompts from a screen. According to ABC News bank loans to small businesses are at a 12-year low.
The article explains that the reduction of bank credit has had an even bigger impact on small business than it would on larger ones that can borrow money through corporate bonds and “commercial paper???, whereas smaller and growing businesses rely almost exclusively on credit provided from banks. The message this sends to business owners who are planning on taking out a loan is to choose your lending institution carefully. Make sure they are well versed and staffed by professionals who can help their clients ride through the storm.
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