Secured vs. Unsecured Lines of Credit

Secured vs. Unsecured Lines of Credit

Whether you need financing for store renovations, equipment purchases, or other operating expenses, a revolving line of credit could be just what your company is looking for. Unlike commercial loans, which give you a fixed amount of money and are closed out after being paid off, a line of credit can stay open for many years and can be used to borrow money again and again.

This is ideal if you want to use the money for recurring business expenses, and it also enables you to build a strong credit history over time.

While most business owners are familiar with credit cards and have several of them, many have yet to use other lines of credit. And the first question asked about credit lines is, “What is the difference between secured and unsecured lines of credit?”

What Are Secured Lines of Credit?

Secured lines of credit work like any type of revolving credit: you borrow money as needed, only pay interest on money borrowed, and pay down the balance month by month. This allows you to once again borrow more money – up to your account limit.

But to qualify for secured credit, you have to put up collateral – usually in the form of equity in a commercial property or other assets. This not only allows you to borrow a larger sum of money, but it also gets you lower interest rates since there is less risk for the lender.

What Are Unsecured Lines of Credit?

Unsecured lines of credit, on the other hand, come with higher interest rates since they are riskier for lenders. It can also be more difficult to secure larger sums of money with unsecured credit for this same reason.

But the flip side is that there is less risk and hassle for you since you don’t have to put up any collateral. Also, the streamlined application process is often faster and simpler compared to a secured credit line.

Does a line of credit sound like a good fit? Contact Summit Commercial Capital today to explore what types of financing might work best for your needs.