Understanding Unsecured Business Lines of Credit

by 01 Feb 2008

The Challenge to Change
Understanding Unsecured Business Lines of Credit

For the past several months the mortgage industry as a whole has become somewhat of a ‘gloom and doom’ industry.  Each day as we read the financial news we learn of another major mortgage lender closing their doors and or suspending their loan pipeline.  Their once bread and butter products and programs, how we made our living, have now become ancient relics and part of ‘the good old days’.  With adversity comes the opportunity for prosperity.  One income opportunity lies in the area of Unsecured Business Lines Of Credit [UBLOC].  However, it requires a totally different mind set from that of the traditional mortgage broker and loan officer.  With that comes the challenge to change. 

Whether it is to meet seasonal inventory demands, remodel your office space, or any other short-term financial need, an unsecured business line of credit is an excellent way to have extra funds available to your business when you need them. Not unlike a credit card, an unsecured business line of credit can provide you with the necessary funds to complete a project or make it through a cash flow crunch. Based on the funds you use, you pay interest on the outstanding monthly balance only.

Many new business owners use personal lines of credit in order to finance their companies when starting out. However, once the business has made it through the initial growth phase, it is advantageous to apply for an unsecured business line of credit. While an unsecured business line of credit will have more stringent qualifications than a mortgage and can perhaps be more difficult to obtain than personal lines of credit, once you have one, you will leverage your buying and borrowing power.   Unsecured business lines of credit vary in how they are set up. For example, some lenders will require tax returns and business financials, regardless of the amount sought.  However, some lenders do not have this requirement and their process is application only.  Such credit lines can also be based on receivables and, in some cases, inventory (although this is less common since the value of inventory can decline very quickly and is therefore seen as a greater risk to the lender). The interest rate can also differ, since commercial rates may be equal to or exceed the prime lending rate (also based on the level of risk as perceived by the lender). Therefore, it is advisable to shop around. While seeking an unsecured business line of credit, you will also want to know that the interest being paid is only on the money being borrowed, as opposed to being calculated on your borrowing limit or in any other manner. Also, some lenders provide special interest rates for a limited time frame such as PRIME minus 1 for the first 6 months.  An unsecured business line of credit can allow you to always have the funding available that you need and give you peace of mind as a business owner. 

60-Second Guide to

Establishing an Unsecured Business Line of Credit [UBLOC]

For financing flexibility, nothing beats an Unsecured Business Line of Credit [UBLOC].  Structured very similarly to your personal credit cards, UBLOCs allow the principals of approved 2 plus year old business to borrow and to use only as much money as is needed, up to the established UBLOC limit, to stay on top of seasonal and business cycle fluctuations.  Application and repayment requirements are generally far simpler than term loans and other common financing options.

However, an UBLOC is by no means a panacea for a small business, nor is it entirely free of requirements and risks. In just 60 seconds, we’ll show you how to determine if an UBLOC is right for you.

0:54     What Do You Need and Why?
An UBLOC is suitable for temporary, short-term needs such as covering cash flow, purchasing supplies and inventory, and financing receivables. For larger, long-term investments such as new facilities, equipment and other fixed assets, a conventional business loan or other financing mechanism may be more appropriate.

0:48     Shop Around
Procedures to qualify for, use and repay an UBLOC vary among lenders.  Nearly all will charge fees for start-up, transactions and annual use and will require personal credit scores of 660 plus for each bureau with no lates, liens, judgments, collections or bankruptcy.  However, there are no annual reviews of how you’re using your UBLOC

0:35     Consider the Costs
An UBLOC offers the same convenience as credit cards do, and many of the same risks.  You must manage these funds wisely to make sure you don’t abuse them.  Unlike loans, interest rates on an UBLOC may vary with the market, your balance and other factors.  The interest rates are generally in the range between the PRIME rate and PRIME plus 4.  Sometimes they can be higher.

0:27     Line Up Your Qualifications 
Your application for an UBLOC will not require a business plan, tax returns or business financials.  The process is application only on a stated income and stated asset basis up to $50,000 per lender.  Amounts over $50,000 per lender will require full documentation to include the last 2 years personal and business tax returns as well as the last 2 years business financial statements. 

0:14     Build-in Sound Budgeting
Just because you qualify for an UBLOC doesn’t mean you have to use it.  Good business planning, financial management and operational skills can help you minimize the need for an UBLOC (and, accordingly, your debt), leaving those funds available for true emergencies.

0:06     Cash In on Experience
Assistance with UBLOCs and other forms of business financing is always available from National Business Finance.  Experienced counselors can help you through every step from needs assessment to applications and money management.  These services are an ideal investment in the future of your small business.

Mitchell Chapman is the Executive Director of National Business Finance, who provides alternative financial solutions for small businesses.  National Business Finance specializes in providing unsecured working capital, 100% NO DOC commercial mortgages as well as residential and commercial construction financing.


Should CFPB have more supervision over credit agencies?