How to Get an Unsecured Business Line of Credit

by Neal Frankle, CFP ®

The lifeblood of your business is cash – without it, your business will shrivel and die. Sometimes you need a transfusion. If you don’t have collateral, then you will need an unsecured business line of credit.

Here are the steps I recommend you take:

1. Get friendly.

Talk to bankers and other lenders. Let them know about your business and why you are looking for an unsecured business line of credit. Ask them what they think would be the easiest/least expensive route for you to borrow money. Ask lenders what they look for in a borrower. Find out about the approval process; learn how long it takes and what the lending committee looks for.

2. Pretty yourself up.

Of course I’m talking about your credit score here.

Do whatever you can to increase your credit score. A higher score indicates less risk that you’re going to flake on the loan. This makes you much more attractive to would-be lenders.

3. Open the books.

The only way you’re going to get that unsecured business line of credit is if you have a profitable business. The only way you’ll be able to show that you’re profitable is if you maintain a good set of records showing your budget, profit and loss and balance sheet.
If you don’t have a system for tracking your profitability, put one in place immediately. Read “Budgeting for Small Business” for some cool ideas.

4. Inspect your contract.

Some people are so happy when they get approved for the loan that they fail to study the contract. Big mistake.

Understand the terms of the loan and make sure you can adhere to them. What is the interest rate? What are the payback terms? Are there any business covenants?

The best way to make sure you are getting good terms is to speak with lots of lenders. Call six or more. You don’t have to complete an entire loan package to get a general idea of the terms.

The nice thing about an unsecured business line of credit is that you won’t have to wait for a long time to get the results of your application. It might take less than two weeks to find out. If things don’t work out with one lender, don’t give up. You only need one to approve you. Go talk to other lenders if you get denied by one.

If you are starting your business, it’s great to have an unsecured business line of credit in your back pocket. Even if you don’t need money now, you might in the future. There is no better time than now to start putting this business tool in place.

If your credit is good, I strongly recommend you consider getting a peer-to-peer loan. You’ll likely get your approval and your cash very fast.



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{ 2 comments… read them below or add one }

Financial Samurai August 12, 2010 at 5:21 PM

Hook me up with some monay Neal!

Ever hear stories of bribery and such? That would be interesting.


Nunzio Bruno August 12, 2010 at 5:18 PM

Great post! There is nothing truer about sometimes need a cash infusion to get over a speed bump in your small business. These were really simple and honest tips that people overlook. Especially the first one – just talking to people has the potential to open up soo many doors.


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