Every business needs cash to operate, thrive, and grow. And having adequate cash, especially in difficult times, can mean the difference between thriving and failing. Getting a line of credit can be the solution that is needed. But first, understanding the differences between secured vs. unsecured lines of credit is necessary. 

line of credit is a revolving type of loan, meaning that your business can access funds up to an approved limit as funds are needed and then as the loan is repaid, you can borrow up to the approved limit again. Funds that are used can be repaid immediately or repaid over time in monthly payments. Interest on the line of credit is charged only as funds are used. There are significant differences between secured vs. unsecured lines of credit.  

Secured vs. Unsecured Lines of Credit 

A line of credit is secured when the lender requires collateral for the loan, typically by using the assets of the business or the assets of the business owner. A secured line of credit is typically used with larger loans as an offset against the higher risk of the loan. A secured line of credit will also come with a lower interest rate compared to an unsecured line of credit. 

An unsecured line of credit is not guaranteed by using any collateral. Typically, unsecured lines of credit are more difficult to obtain.  

Lines of Credit versus Other Types of Loans 

Secured vs. unsecured lines of credit have advantages over other types of loans. First, a traditional loan provides a borrower with one-time access to a specific lump sum compared to flexible and repeated borrowing in a line of credit. Second, interest is applied to a traditional loan on the full loan. In a line of credit, interest is charged only on the funds that are drawn for use. Third, a traditional loan is generally granted for a specific purpose while a line of credit can be used for any purpose.   

How Can Lines of Credit be Used 

Both secured vs. unsecured lines of credit can be used to pay past-due invoices, operating expenses, purchase equipment, purchase inventory, pay for new hires, cover seasonal business lulls, handle quarterly tax payments, deal with unexpected financial challenges, or fund expansion.        

How to Get a Line of Credit 

Follow these steps to get both secured vs. unsecured lines of credit: 

First, determine the amount of funds that you will need. Know that the amount of funds that can be made available will depend on each lender. Based on your business’s credit history and revenue, a lender may request collateral, thus securing the loan. 

Second, your eligibility for a line of credit will depend on your time in business, credit score, and business revenue. 

Third, compare lenders. 

Fourth, gather the required documentation and then submit your application.

Get Expert Alternative Financing Assistance 

Contact Multiple Financial Solutions, with offices in Jacksonville, FL, and Houston, TX. We offer a portfolio of alternative funding solutions for companies that have need for it, including business lines of credit, merchant cash advances, and commercial real estate funding. We focus on businesses that have been active for 2+ years and are looking to grow to the next level. If you are facing funding challenges, we are ready to help you.