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If you run a startup, you may have trouble finding traditional financing because you haven’t been in business very long or don’t have much business credit. Yet you still need capital to launch your business, renovate space, or hire employees. In that case, an unsecured business line of credit for startups may be one solution worth considering.
Secured vs. Unsecured Business Lines of Credit: The DifferenceBefore we talk about getting an unsecured business line of credit, let’s first look at the differences between secured and unsecured business lines of credit, as well as what a line of credit is.With both types of small business lines of credit line, unsecured or secured, you are approved for a maximum amount of funds. You can take out money from that line of credit, up to that maximum, and then pay it back. This is in contrast to a loan, which gives you a lump sum of money that you then pay back over time.For example, if someone is approved for a $10,000 line of credit, they could take out just $1,000 now and pay that back, and then $8,000 down the road when the money is needed. Whatever is paid back, can be borrowed again.A secured line of credit requires some sort of collateral as security against the financing. That might be a down payment or an asset like real estate or equipment. A secured line of credit may have lower interest rates than unsecured lines of credit because it’s generally considered less risky, given the security provided. Should you not be able to pay back what you’ve borrowed, the lender will be able to take your asset acting as collateral to cover the debt.On the other hand, an unsecured line of credit does not require collateral. It may be more difficult to be approved for, as lenders may have higher criteria for applicants than with a secured loan, including more stringent requirements around credit scores and revenue history.As a startup, you may not yet have assets you can use as collateral for secured lines of credit, so an unsecured business line of credit may be a better fit.
Lenders Offering Unsecured Business Lines of Credit?Now we’ll look at a sampling of brands offering unsecured business lines of credit for startups. Below, find a chart with some key information about each lender.
BlueVineIn addition to offering business checking and invoice factoring, BlueVine provides startups with small business unsecured lines of credit. According to their website, its application can take as little as five minutes to complete, and you can see funds deposited into your account within hours of approval.
- Lightning-fast application and approval process
- Also offers business checking and invoice factoring
- Minimum time in business (3 years) may be more than some startups have
- Repayment period for each draw on the line of credit is short (6 or 12 months)
Requirements for BlueVine Business Lines of CreditTo qualify for financing through BlueVine, applicants will need:
- 650+ FICO® Score
- 3+ years in business
- $40,000 in monthly revenue
Wells Fargo Wells Fargo offers two startup business lines of credit unsecured options: the BusinessLine® and the Small Business Advantage®. They vary slightly in terms of amounts and guarantor requirements, but neither require collateral.
- Both lines provide a Mastercard® access card
- Both offer an exclusive rewards program
- Fees for some lines of credit between $95 and $175 (waived first year)
- The BusinessLine® has 3% fee for ATM and over-the-counter transactions using the BusinessLine Mastercard
Requirements for Wells Fargo Business Lines of CreditFor-profit businesses are eligible for Wells Fargo Small Business Advantage® line of credit, and potential borrowers must have household personal liquid assets less than $200,000. They must meet the SBA requirements for a small business as well.In terms of personal guarantees: for the BusinessLine®, personal guarantees from any owner with 25% and a minimum combined aggregate of 51% of the business are required. For Small Business Advantage®, personal guarantees from each owner holding 20% or more of the business are required.
FundboxFundbox offers no doc business line of credit options (meaning the application process is simple and requires applicants to provide little to no documentation), and may be appealing to startups with lower credit scores, who may be struggling to meet the minimum eligibility requirements required by other lenders.
- Funds available as soon as the next day
- Relatively low minimum credit score (500) required to qualify
- Only 12 or 24-week repayment options
- Weekly payments are required
Requirements for Fundbox Business Lines of CreditTo qualify for financing through Fundbox, potential borrowers must have a business checking account and either three or more months of transactions in your account or two or more months of activity in a supported accounting software platform. The credit score requirement is just 500. Applicants also must have $50,000 in annual revenue, but if you don’t, that’s not necessarily a disqualifier.
SunWise CapitalAnother resource for small business unsecured lines of credit is SunWise Capital. Its unsecured lines require a minimum time in business of 1 year.
- Does not report to your personal credit report
- Approval in as little as 24 to 48 hours
- After approval, time to funding may be as little as two weeks
- Short-term payback: 5-21 months
- Payments must be made daily or weekly
Requirements for SunWise Business Lines of CreditRequirements for lines of credit with SunWise may be more attainable for more startups:
- Minimum $150,000 annual revenue
- Minimum credit score of 700
- Minimum 1 year in business
OnDeckThe final lender included in this round up of unsecured startup business line of credit options is OnDeck. Its line of credit offering has no prepayment fee and the option to have that line increased if you meet certain qualifications. Important to know: unlike other options, OnDeck charges a monthly maintenance fee of $20, which may be waived the first six months if you withdraw $5,000 or more within one week of opening your line.
- They offer Instant Funding, depending on the terms. This means fast access to cash, even when banks are closed
- Possible to get a credit line increase over time, based on qualifications
- There is a monthly maintenance fee
- Payments are automated weekly
Requirements for OnDeck Lines of CreditTo qualify for an OnDeck line of credit, applicants generally need to have been in business for at least one year and have at least $100,000 in annual revenue. You must also have a 600 or higher FICO® Score.
Alternatives to Unsecured Business Line of Credit for StartupsSome startups may find it difficult to qualify for an unsecured line of credit. Here are a few other options that may be available to startups.
Business Credit Cards Business credit cards can provide new business owners with needed access to cash. They can also be an important tool to help business owners separate their personal finances from their business finances. Credit card issuers will generally review things like your personal credit score and income. Some options may require collateral or a personal guarantee.
SBA MicroloansThe U.S. Small Business Association (SBA) microloan program offers loans up to $50,000 to certain eligible small businesses. Microloans from this program can be used to finance things like working capital, inventory, furniture, and machinery or equipment.
CrowdfundingThere are a variety of crowdfunding platforms online that allow business owners to raise money to support their business. There are a few different types of crowdfunding, but in general, this process allows crowdfunders to raise money for their project without taking on additional debt. For a more detailed look on crowdfunding, take a look at Lantern’s comprehensive crowdfunding guide.
Equipment FinancingEquipment financing may be helpful for businesses who are in need of new or used equipment. With this type of loan, the equipment generally acts as collateral, which can mean that lending requirements may be less strict than for unsecured loans. Depending on the lender, potential borrowers may be able to finance up to 100% of the cost of the equipment. There are also options that may allow you to either lease or loan.
An Unsecured Business Line of Credit Can Give You the Boost You NeedWhile having access to cash when you need it, rather than in one lump sum, can be tremendously helpful to a startup, keep in mind that some lenders will charge more than others—whether that's in fees, interest or both—so it’s important to decide how necessary the financing is to your business right now.Given that the line of credit options discussed here are unsecured, it may be difficult for some startups or applicants with lower credit scores to meet the minimum qualification requirements at some lenders. In that case, it may be worth evaluating alternative options or waiting until the startup has found its legs and built up its credit and revenue history to improve their chance of qualifying for more competitive financing options. Still, sometimes a business just needs money. Lenders like the ones covered here can help provide peace of mind to startups who might not otherwise qualify for traditional financing.
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About the Author
Susan Guillory is the President of Egg Marketing, a content marketing firm based in San Diego. She’s written several business books, and has been published on sites including Forbes, AllBusiness, and Cision. She enjoys writing about business and personal credit, financial strategies, loans, and credit cards. Follow her on Twitter @eggmarketing.