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Should You Use an Unsecured Business Line of Credit?

Running a business requires the use of capital so that you can cover the cost of operations and growth. However, as a business owner, you may also face instances where you need to support your cash flow, such as equipment breakdowns. Not every business has money set aside to pay for such things, which is where traditional business loans and other forms of finance come into play. For business owners who need fast access to cash without using collateral, an unsecured business line of credit may be ideal for you. Let’s discuss unsecured lines of credit and whether it is right for you.


Key Takeaways


  • Unsecured business lines of credit offer access to funds without requiring collateral like inventory or real estate.
  • Borrowers receive a set amount of funds and only pay interest on the borrowed amount. The credit line remains open for borrowing, repayment, and reuse, with timely payments and adherence to credit limits being crucial.
  • Criteria include a solid credit score (typically 630 or higher), sufficient business revenue (ranging from $25,000 to $250,000 annually), an established business history (usually at least a year), a favorable debt-to-income ratio, and providing necessary documentation.

Business Revolving Line of Credit vs Term Loans

What is an Unsecured Line of Credit?

An unsecured line of credit is a credit line provided to you without the backing of physical collateral, such as inventory, equipment, or real estate. However, even without collateral, lenders typically ask for a Uniform Commercial Code lien or a personal guarantee in order to mitigate the risk of taking you on as a lendee.


A UCC lein provides the lender with the right to seize assets should you default on the line of credit. Should that happen, the lender will either file for a specific asset or a blanket lien, which covers every asset you have.


Meanwhile, a personal guarantee holds you responsible for paying the debt and, should you be unable to repay the debt, promises the lender access to your personal assets as a means to recover losses.


How Does an Unsecured Business Line of Credit Work?

An unsecured line of credit is much like any other credit line. You receive a small set of funds that can be used. When you draw from that set amount, you only pay interest on what you have borrowed until all has been repaid. You can continue to borrow, repay, and borrow for as long as the credit line is open. However, you must make payments in a timely manner and not exceed the credit limit. Should the credit limit be exceeded, you will need to pay down the balance before using your available credit once again.

Secured vs. Unsecured Business Line of Credit

Secured and unsecured business lines of credit offer distinct approaches to accessing financing, each with its own set of advantages and considerations. A secured line of credit requires collateral, such as real estate or equipment, providing assurance to lenders and reducing their risk. In contrast, an unsecured line of credit does not require collateral, relying instead on the borrower’s creditworthiness.


Another significant difference is the interest rates. Secured lines, due to the presence of collateral, often have lower interest rates when compared to unsecured options. For businesses with collateral to offer, a secured line of credit is more cost-effective.


A second consideration is the borrowing limits. A secured line of credit offers a high borrowing limit due to the value of the collateral provided. This can be advantageous for businesses with substantial capital needs, providing greater access to funds for large projects or ongoing operational expenses. Conversely, unsecured lines of credit typically have lower borrowing limits, as lenders extend credit based solely on the borrower’s financial profile, without the security of collateral.

How to Qualify for Unsecured Business Lines of Credit

Qualifying for an unsecured business line of credit typically requires meeting certain criteria set by lenders. While the specific requirements may vary depending on the lender, industry, and the financial health of your business, there are several common factors that lenders consider when evaluating applications for unsecured business lines of credit. Here’s a breakdown of key steps and factors to consider:


Your Credit Score

If you don’t want to use collateral, then it is best to maintain a solid personal and business credit score in order to apply for an unsecured line of credit. Lenders typically want a credit score of 680 or higher, though there are some who take 630 and above.


Business Revenue

Lenders may require a minimum annual revenue threshold that typically ranges from $25,000 to $250,000. To the lender, the higher the revenue you generate, the more money you will have to repay what you borrow. This also gives the lender incentive to periodically increase your credit line.


Established Business History

Having a track record is important, as it is a sign of stability. Generally, your business will need to operate for at least a year. Some lenders want 6 months; others want two years. For this reason, startups may find it harder to obtain an unsecured line of credit.


Debt-to-Income Ratio

Any time you seek to get a loan or line of credit, your debt-to-income ratio is scrutinized. A lower debt-to-income ratio demonstrates your ability to manage debt responsibly and suggests lower financial risk to the lender.



Be prepared to provide documentation to support your application, including business registration documents, tax returns, bank statements, and financial statements. Having all necessary documentation organized and readily available can streamline the application process.


Contact a Small Business Lender to Get a Line of Credit for Your Business

Determining whether to use an unsecured business line of credit requires careful consideration of your business’s financial needs, creditworthiness, and risk tolerance. If you meet the qualifications, maintain a strong credit profile, and have a solid revenue stream, an unsecured line of credit can provide the flexibility and convenience your business needs to thrive.


Ready to explore your loan options? Contact New Bridge Merchant Capital today. Our experienced team can help you navigate the application process, assess your eligibility, and find the right financing solution to support your business goals. Whether you’re looking to cover unexpected expenses, invest in growth opportunities, or manage cash flow, we’re here to help you succeed. Reach out to us today at 844-228-0593 or by filling out the online form to learn more about how we can assist you in obtaining an unsecured business line of credit tailored to your needs. Your business’s financial future starts here.

Work With a Leading Commercial Lender

At NewBridge Capital Solutions, our loan products can help businesses of all sizes. With our exceptional customer service and reputable funding, we have become a trusted leader in the commercial finance industry. If you want to apply for a term loan that can provide working capital for your business, make sure to contact us.
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