What is Unsecured Business Credit?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 20 May 2020
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Unsecured business credit is a line of credit that is extended to a corporation without the need to pledge some type of collateral. With this type of credit line, borrower assets are not limited in their use, meaning that those assets may be sold if the owners of the corporation determine the action is in the best interests of the company. While many businesses find that unsecured business credit is more difficult to obtain, there are still a number of lenders that will work with both small and large businesses to establish a line of credit that requires no collateral and allows the company access to credit that can be used to grow the business.

As with any type of credit situation, companies want to obtain unsecured business credit with the most favorable terms and conditions possible. Along with not requiring the pledge of any type of collateral, the goal is to lock in the most competitive interest rate on outstanding balances as possible. This is true for both unsecured business loans that are used to buy heavy equipment, and lines of credit that are drawn upon on an as-needed basis. A lower interest rate means that the company ultimately pays less money for the privilege of using the credit, making the credit line all the more valuable to the business.

Changing economic climates have caused some lenders to tighten qualifications for obtaining unsecured business credit. This means that in order to be approved for this type of credit, applicants must often provide evidence that they meet the qualifications put in place by lenders. One basic qualification has to do with the current financial stability of the business. A company that is current on all its obligations and enjoys a steady stream of income is more likely to receive unsecured business credit, simply because that company presents less risk to different lenders.

At the same time, many lenders look not only at the current status of the business, but also the prospects for future growth and revenue generation. This is particularly important when it comes to companies that provide certain types of technology-based goods and services. Here, lenders will want to determine if there is a chance that newer technology will eclipse the product line of the applicant at some point during the life of the loan or the credit line, effectively reducing the ability of the company to honor its debt. If there are concerns that changes in technology will render a company obsolete within five or ten years, the lender may choose to limit the amount of unsecured business credit, or even counter with an offer for some type of loan or credit line that is secured with an asset of some type.


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