An unsecured line of credit allows businesses to access cash without needing to pledge assets like real estate, accounts receivable, or inventory as security. Banks instead assess your business’s gross sales—the top line on your tax return before expenses. These credit lines can be particularly valuable for managing cash flow or seizing timely opportunities.

How It Works

Unlike secured loans, which require businesses to pledge assets, unsecured lines of credit rely on the financial strength of your business. Banks base their decision on your revenue and creditworthiness. Since there’s no collateral involved, these lines of credit often carry slightly higher interest rates, but they provide flexibility without tying up your assets.

Why Credit Matters

When applying for an unsecured line of credit, both personal and business credit are essential factors. Banks evaluate credit scores to gauge risk and make lending decisions. They generally review:

• Personal Credit: Banks typically prefer scores around 680 or higher.
• Business Credit: Many banks also check business credit, referencing Experian Business, LexisNexis, or your SBSS score (a combined personal and business credit score).

These credit details help banks gauge how responsibly you handle financial obligations.

Examples Across Industries

Unsecured lines of credit offer advantages across various business sectors:

• Retail & Wholesale: Need to buy extra inventory but lack immediate cash? A line of credit can fund your purchase. You pay interest only on what you borrow, and once the items sell, you can repay the line with profits.
• Service Providers: Waiting for client payments can tighten cash flow. A line of credit can cover expenses like payroll and vendor bills, allowing you to take on more clients confidently.
• Construction: With payment delays common in construction, a line of credit helps cover supply costs and payroll, offering peace of mind to tackle new projects.

Banks Offering Unsecured Lines of Credit

Each bank has different requirements:

• TD Bank: Offers up to $250,000 without collateral, lending about 25% of gross sales. TD requires an SBSS score of 160+ for SBA-backed loans and 200+ for conventional loans. A $25K credit line is needed for eligibility.
• Citizens Bank: Lends up to 25% of revenue, with consistent bank statements and no overdrafts required.
• M&T Bank: Offers 10-15% of sales, requiring a full banking relationship and SBSS scores of 165+ for SBA-backed loans, 185+ for conventional loans.
• Bank of America: Provides unsecured lines up to $350,000, lending 10-15% of annual sales. Often reviews mid-process to ensure business stability.
• Northfield Bank: Lends up to 20% of sales, capped at $250,000, with a required SBSS score of 185+ and a full banking relationship.

Pros and Cons of an Unsecured Line of Credit

Pros:

• No need to pledge assets as collateral
• Flexible use of funds as needed
• Easier application process compared to secured loans
• Some banks allow secondary or third-position UCC filings

Cons:

• Higher interest rates than secured loans
• Strict credit requirements
• Some banks combine all your credit exposure, even across different companies

Working With a Broker

Given the specific requirements and unique features of each bank, working with an experienced broker can be beneficial. Brokers often know the best rates and current promotions and can navigate UCC filings, identifying banks that are flexible on position. By matching your business’s profile with the right banks, brokers save you time and increase approval chances. Instead of going bank to bank, they connect you with the best fit, allowing you to focus on running your business.

An unsecured line of credit can be a flexible and powerful financial tool, providing liquidity to support cash flow, take on new opportunities, or manage unexpected costs.

Need assistance choosing the right business loan or SBA loan for your business? Have questions about this post? Feel free to reach out!