An unsecured line of credit is a viable financing option for businesses in need. There are always two sides to a coin; especially when it’s borrowed. As long as you don’t get in over your head, a credit line may be the solution you’ve been looking for. This article will outline why you should investigate this financial option and how to avoid habitual debt.
The top 5 Reasons to investigate an Unsecured Line of Credit
There are appropriate reasons to examine unsecured funding options. It all depends on how you use them. We’ll take a detailed look at each scenario.
The Life Cycle of a Business
The first two reasons to seek out an unsecured line of credit have everything to do with what phase of business ownership you are in. The two most common roads to unsecured lending are start-up costs and the need for short-term revenue.
1. Business Development Funds-We all have to start somewhere. For small business owners that usually means with seed money from investors or lenders. Often, due to a lack of credit, the absence of collateral, and/or minimal support from investor, start-up companies are forced to seek out unsecured lenders because they have no other options. With planning and solid money management, the funds can get your business rolling and give you the revenue to pay your lender back.
2. Short-term Revenue Generation-Lean sales periods are a reality in business. No matter what happens economically, owners still have to pay vendors, process payroll, and keep the lights on. A credit line can give you the short-term boost you need to make ends meet until your sales pick up again. Spend your money wisely and keep the balance reasonable to avoid falling into a pattern of debt.
Credit Has a Silver Lining
We’ve all heard about the horrors of mis-managed credit, but believe it or not, unsecured lending has positive affects as well.
3. Credit Repair-An unsecured line of credit is a great way to start cleaning up poor credit. You have to make a plan and take deliberate steps to reach your goal, but with self control, wise spending, and timely payments, your credit score will improve.
4. Building a Lending Profile– Following responsible borrowing guidelines shows diligence and dependability in business; qualities that matter to lenders. During any hard or lean times in the future, lending companies will see the sound financial profile you’ve built and continue working with you.
5. Repayment Structures-There’s different types of unsecured credit available. The good news is lenders will outline the repayment terms. Meaning, you’ll know if the credit line is paid off through an in-store credit card terminal or on a monthly basis. You can review your statements and figure out how to pay off your balance faster.
An unsecured line of credit is a great asset for a new or struggling company. It establishes working capital, gives back to the community and fosters relationships with local lenders. All of this will strengthen your business long-term.