Our uncertain economy has placed undue pressure on financial institutions, forcing many to tighten lending requirements. The limited supply of business lines of credit and alternative financing options has placed many businesses into challenging financial positions. Despite these macro-economic conditions, options do exist for small business owners to access much needed cash for floating operating costs or for expanding.
One viable option for securing capital is the unsecured line of credit, popular with small business owners as it often doesn’t require either a personal guarantee or collateral for funding. When evaluating unsecured lines of credit, follow these tips:
1. Funding Eligibility– Determine how the financial institution determines the amount of funding available for your small business. For example, are they going to review past sales, future invoice collection and/or a combination in determining the eligible funding amount? For businesses that maintain consistent sales, particularly through a verifiable source such as merchant services transactions may have greater eligibility for funding than a business that relies solely upon receiving accounts receivable paid by personal/business checks. If the lender is relying upon merchant services transactions, will they use an average monthly amount over a year, over the past 6 months or over the past month for determining your line of credit eligibility?
2. Repayment Options– How does the lender recover funds distributed via the unsecured lines of credit? If your business has average monthly sales that vary greatly, consider a lender that offers flexible repayment options. For example, the option to repay unsecured lines of credit using a percentage of the monthly sales as they are transacted will offer greater flexibility than a fixed weekly, monthly or quarterly payment. Also, be sure to inquire into the repayment term. Will you be required to repay the entire amount in a challenging shorter period such as 90 days, or can you extend repayment of the unsecured lines of credit for several months, or even over a year?
3. Application Process– Is the application process quick and easy or long and cumbersome? What documentation is required for funding consideration? Will your personal credit or prior financial history be taken into consideration? When possible, search for lenders that offer quick and easy processes and that don’t require review of your personal finances, which will be of particular importance if you have former bankruptcies, foreclosures or bad credit.
4. Approved Funds Limitations– Once approved for a line of credit, are there restrictions placed on how your business uses the funds? Search for lenders that do not place restrictions on funds usage, as this will offer the greatest flexibility to you for making important business decisions as you see fit.
If your business is in need of a capital infusion, don’t despair! There are viable options available for leveraging unsecured lines of credit, with almost guaranteed approval, giving your business the capital it needs quickly and easily.