Unsecured Business Line of Credit
If you’re looking for a flexible cash flow solution for your business, a business line of credit may be an excellent option, regardless of the size of your business. Compared to a fixed term loan, a business line of credit provides more flexibility to access capital when needed, even at short notice.
Moreover, with a business line of credit, you only pay fees and interest on the amount you have drawn down, not on the entire balance. This means you can save on fees and interest on funds that you don’t need.
In addition to these benefits, there are several other advantages to consider:
Term Loan
vs
Line of Credit
When it comes to business financing, there are two main options to consider: a term loan and a business line of credit. While a term loan provides a lump sum of money that is repaid over a fixed term with interest, a business line of credit provides a revolving line of credit that can be drawn upon as needed.
A term loan is a great option for larger, one-time expenses, such as purchasing a property or large piece of equipment. On the other hand, a business line of credit is better suited for smaller, ongoing expenses such as paying suppliers or managing cash flow during slower months.
Understanding the differences between these two options and their respective benefits can help you make an informed decision about which type of financing is best for your business.
Unsecured Term Loan
An unsecured term loan is a type of loan that doesn’t require any collateral and is repaid in regular instalments over a set period of time. The loan amount, interest rate, and fees are typically fixed for the duration of the loan, which can range from 12 months to 2 years, depending on the lender. Since the loan is unsecured, the borrower’s creditworthiness is the primary factor that determines the loan’s approval and interest rate. Unsecured term loans can be used for a variety of purposes, including working capital, equipment purchases, and business expansion.
Unsecured Business Line of Credit
Compared to a fixed term business loan, an unsecured business line of credit offers greater flexibility. With a business line of credit, a lender provides a maximum amount that a customer can borrow. The borrower can then access funds from the credit line at any time, as long as they don’t exceed the maximum credit limit. The payment frequency and amount will vary based on the amount borrowed at any given time.
Comparison between Unsecured Business Line of Credit and Unsecured Business Term Loan:
| Unsecured Business Line of Credit offers a 12-month open-ended loan term, and borrowers are required to have an ID check (Licence) | 3-months in business, and regular cash flow. | The loan can be approved and settled in 24-hours, and borrowers can access finance amounts of $500,000 or more. They can redraw at any time up to the total approval amount, and they only pay interest costs on the amount used. |
| Unsecured Business Term Loan, on the other hand offers a fixed loan term typically up to 18-months, and borrowers are required to have an ID check (Licence) | 3-months in business, and regular cash flow. | The loan can be approved and settled in 24-hours, and borrowers can access finance amounts of $5,000 to $300,000. However, if they need more finance, they must re-apply with the lender. Interest and fees are payable on the total loan amount, regardless of how much is used. |
Therefore, Unsecured Business Line of Credit offers more flexibility with a longer-term, higher finance amount, and the ability to redraw at any time, while Unsecured Business Term Loan offers a fixed term with a smaller loan amount and requires re-application if more finance is needed.
Unsecured Loan Comparisons
| Loan Type | Comparison |
|---|---|
| Unsecured Business Loan | Benefits & Suitability: An unsecured business loan provides businesses with a facility term of 3-12 months and can be used for any business purpose, including funding a specific project or general cash flow needs. This loan offers top-up and early payout options and comes with a fixed repayment schedule, allowing businesses to plan their budget accordingly. |
| Unsecured Line of Credit | Benefits & Suitability: An unsecured line of credit provides businesses with a revolving facility term of 12 months and is typically used as a cash-flow facility. This loan incurs fees only on the amount drawn upon and comes with no line fees, making it a flexible form of unsecured finance suitable for businesses with irregular cash flow. |
| Unsecured Equipment & Vehicle Loans | Benefits & Suitability: Unsecured equipment and vehicle loans provide businesses with a facility term of up to 60 months and may include a balloon option, making the loan more affordable due to longer terms. This loan type, also known as rent to own, allows businesses to rent equipment with the option to purchase it at the end of an agreed-upon term. This flexibility can help businesses secure expensive equipment they require without significantly impacting their cash flow. |