The market conditions today are rapidly changing, and you need to know how to adapt to them to remain competitive. That’s particularly important when your business is growing or struggling with unstable cash flow.
These are the times when you need to know how to get an unsecured business loan. But keep in mind that not all unsecured business loans are created equal.
This article explores what the business line of credit is and what makes it one of the best unsecured business loans to improve your cash flow.
Think of the business line of credit as closer to having a business credit card than taking out a business loan.
It’s because it gives you access to funds you can use to cover all business expenses. Also, the lender will set a specific limit to what you can borrow. Usually, this is determined by business finance, credit history, and business revenue.
There’s no cap on where and how you can use the money, as long as it’s for business purposes.
In terms of benefits, a lender doesn’t allocate a lump sum to your account, which results in monthly payments. Instead, you’re allowed to use a particular sum and repayments.
To clarify, the business line of credit is revolving. That means the interest only starts to accumulate when you begin to draw the money. Better yet, you can access the funds again as soon as you cover the credit balance.
But it’s best to put this in context so you understand how the business line of credit works.
For instance, a lender may approve a line of credit of $80,000. Then, you take out $20,000 to purchase new equipment. Here, you’ll only pay interest on the sum you’ve drawn from the account.
The remaining $60,000 is available to you and you don’t pay interest on that amount.
So, if you need an additional $30,000 to expand your business, you can get those funds even before you’ve paid off the $20,000 you already took out. And again, the lender will only charge the interest on the amount you’ve withdrawn.
Still, you should know that unsecured business loan rates may vary from one lender to another.
The submission and approval process isn’t that different to other small unsecured business loans.
That is, the lenders will typically ask you to provide balance sheets, bank statements, and income statements. Additionally, they will check your business credit history. It’s also not uncommon for some lenders (banks particularly) to check your personal credit history as well.
More importantly, some lenders might refuse you if your company has been reporting losses in previous years. So, the rule is that it’s best to show the lender that your company has been earning money.
Assuming you have a stable business and a good credit history, it’s best to apply for the business line of credit sooner rather than later.
You want to apply when your business is healthy and has a stable cash flow. That increases your likelihood of getting approved, and the funds will be available when you need them the most.
That being said, some lenders may set a timeframe to access the funds before your business needs to undergo another approval. This is part of the contract terms and conditions, and you surely need to ask the lender about it before applying.
Now, there are also certain things regarding keeping the loan.
To keep the loan, the lender may demand that your business remains above a specific level of debt. Commonly, this is based on your current debt, revenue, and borrowing capacity.
Also, the lender may require you to cover the entire amount you take out within a predetermined timeframe. Or your business may need to keep a particular net worth.
If you use the business line of credit to improve your cash flow and grow the business, the risk is low.
However, this doesn’t mean you should rely heavily on it.
It’s okay to use the line of credit to cover payroll when necessary, and you can also use it to cover some short-term losses. But if you keep resorting to fast unsecured business loans to pay for the expenses of running your business, that may signal a much bigger problem.
Companies that do it often struggle to secure a stable cash flow each month, which shows there’s something wrong with their operations or business model. But even that situation is repairable.
Should your business find itself in a similar pickle, you might need to consider a more long-term financing solution with lower interest rates.
Lastly, note that there are secured and unsecured business lines of credit.
With unsecured, you’ll be required to pledge an asset to provide the lender with collateral. Should you choose the unsecured route, the lenders may ask for a personal guarantee or lien.
Either way, keep in mind that a lender will first check your finance and credit history. And if that’s in order, you should be able to negotiate more favourable terms and conditions.
Whichever way you look at it, the business line of credit is among the best unsecured business loans Australia has to offer.
Sure, you need to show the lender that your finances are stable. And you might be required to provide a guarantee. But the benefits outweigh the requirements.
Tapping into the funds whenever you need them and paying interest only on what you take out works great for most businesses.
But if you’re not sure if the business line of credit is the best option, Unsecured Finance Australia is here to assist.
We specialise in unsecured business loans that small business owners can use however they see fit, including covering unexpected expenses or tax debt.
Apply online, and you can receive your approval within 24 hours.
Find out more by taking a look at our unsecured business loans.