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Don't get down, don't bail out--just get busy

National Mortgage Professional
Dec 28, 2007

The challenge to changeMitchell Chapmanunsecured business lines of credit, personal lines of credit, financing flexibility, short-term needs Understanding unsecured business lines of credit For the past several months, the mortgage industry as a whole has become somewhat of a gloom-and-doom industry. Each day, as we read the financial news, we learn of another major mortgage lender closing its doors and/or suspending its loan pipeline. What were once bread and butter products and programs, how we made our living, have now become ancient relics and part of the good old days. With adversity comes the opportunity for prosperity. One income opportunity lies in the area of unsecured business lines of credit. However, it requires a totally different mindset from that of the traditional Mortgage Broker and loan officer. With that comes the challenge to change. Whether it is to meet seasonal inventory demands, remodel your office space or any other short-term financial need, an unsecured business line of credit is an excellent way to have extra funds available to your business when you need them. Not unlike a credit card, an unsecured business line of credit can provide you with the necessary funds to complete a project or make it through a cash flow crunch. Based on the funds you use, you pay interest on the outstanding monthly balance only. Many new business owners use personal lines of credit in order to finance their companies when starting out. However, once the business has made it through the initial growth phase, it is advantageous to apply for an unsecured business line of credit. While an unsecured business line of credit will have more stringent qualifications than a mortgage and can perhaps be more difficult to obtain than personal lines of credit, once you have one, you will leverage your buying and borrowing power. Unsecured business lines of credit vary in how they are set up. For example, some lenders will require tax returns and business financials, regardless of the amount sought. However, some lenders do not have this requirement and their process is application only. Such credit lines can also be based on receivables and, in some cases, inventory (although this is less common since the value of inventory can decline very quickly and is, therefore, seen as a greater risk to the lender). The interest rate can also differ, since commercial rates may equal or exceed the prime lending rate (also based on the level of risk as perceived by the lender). Therefore, it is advisable to shop around. While seeking an unsecured business line of credit, you will also want to know that the interest being paid is only on the money being borrowed, as opposed to being calculated on your borrowing limit or in any other manner. Also, some lenders provide special interest rates for a limited time frame such as prime minus one for the first six months. A revolving line of credit can allow you to always have the funding available that you need and give you peace of mind as a business owner. For financing flexibility, nothing beats an unsecured business line of credit. Structured very similarly to your personal credit cards, unsecured business lines of credit allow the principals of approved two-plus year old business to borrow and to use only as much money as is needed, up to the established unsecured business line of credit limit, to stay on top of seasonal and business cycle fluctuations. Application and repayment requirements are generally far simpler than term loans and other common financing options. However, an unsecured business line of credit is by no means a panacea for a small business, nor is it entirely free of requirements and risks. In just 60 seconds, we'll show you how to determine if an unsecured business line of credit is right for you. 0:54 What do you need and why? An unsecured business line of credit is suitable for temporary, short-term needs such as covering cash flow, purchasing supplies and inventory, and financing receivables. For larger, long-term investments such as new facilities, equipment and other fixed assets, a conventional business loan or other financing mechanism may be more appropriate. 0:48 Shop around Procedures to qualify for, use and repay an unsecured business line of credit vary among lenders. Nearly all will charge fees for start-up, transactions and annual use, and will require personal credit scores of 660-plus for each bureau with no late payments, liens, judgments, collections or bankruptcy. However, there are no annual reviews of how youre using your unsecured business line of credit. 0:35 Consider the costs An unsecured business line of credit offers the same convenience as credit cards do, and many of the same risks. You must manage these funds wisely to make sure you don't abuse them. Unlike loans, interest rates on an unsecured business line of credit may vary with the market, your balance and other factors. The interest rates are generally in the range between the prime rate and prime plus four; sometimes they can be higher. 0:27 Line up your qualifications Your application for an unsecured business line of credit will not require a business plan, tax returns or business financials. The process is application only on a stated-income and stated-asset basis up to $50,000 per lender. Amounts over $50,000 per lender will require full documentation to include the last two years' personal and business tax returns as well as the last two years' business financial statements. 0:14 Build-in sound budgeting Just because you qualify for an unsecured business line of credit doesn't mean you have to use it. Good business planning, financial management and operational skills can help you minimize the need for an unsecured business line of credit (and, accordingly, your debt), leaving those funds available for true emergencies. 0:06 Cash in on experience Assistance with unsecured business lines of credit and other forms of business financing is always available from National Business Finance. Experienced counselors can help you through every step--from needs assessment to applications and money management. These services are an ideal investment in the future of your small business. Mitchell Chapman is the executive director of National Business Finance. He may be reached at (954) 495-4791 or e-mail info@nationabusinessfinance.com.
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