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Secured And Unsecured Financing
In the business lending arena, there are two main types of financing.
Secured Financing – This type of financing includes money that requires some type of asset be pledged as collateral for the loan.
Unsecured Financing – This type of financing includes money that doesn’t require collateral for loan approval.
Secured Financing Explained
With secured financing, on the other hand, the lender would just take back the asset that was pledged as collateral, in the case of a default. This helps them to quickly recoup part of their loss. Since the risk isn’t as high with secured financing, borrowers can often get really good interest rates—often as high as 2-5%.
Unsecured Financing Explained
Unsecured financing is a truly powerful form of financing that is not secured down by any obligation of collateral, meaning it’s unsecured. Nothing as far as assets are pledged for the debt. If the borrower defaults, the lender can pursue the borrower legally and their assets, however. But they don’t necessarily have a right to just take certain assets due to the default.
Unsecured financing is the most risky type of business lending, because if the borrower defaults, the only way for the lender to recoup their loss is through taking legal action. This can be very costly, and not something any lender wants to go through. This not only explains the riskiness of unsecured financing, but also why some rates will be even higher than those of secured financing lenders.
Here are some key statistics to keep in mind when considering businesses’ rate of failure. Per the bureau of labor and statistics, 1 out of 5 businesses fail within their first year of operation. Within 5 years, nearly 50% will have closed their doors. And within 15 years, 75% of businesses will have set down…for good. Most businesses do fail—it’s just a fact of reality. This does, however, make the business lending space very risky.
Types Of Unsecured Financing
Unsecured Business Credit Cards – Consumer Reporting / Banks
Most banks will offer unsecured business credit cards. Most of these report to the consumer credit reporting agencies. This means they all require a personal guarantee from you. You can usually get approved for one card max as they stop approving you when you have 2 or more inquiries on your report.
Typically, when you apply for a credit card you put on an inquiry on your consumer report. When other lenders see this, they won’t approve you for more credit because they don’t know how much other new credit you may have also recently obtained. This makes it difficult to ascertain your creditworthiness. They will only approve you if you have less than 2 inquiries on your report within the last 6 months…more than that, and you’ll get declined.
Unsecured Business Financing – Business Reporting
With unsecured business financing, you work with a lender who specializes in securing business credit cards. This is a very rare, little-known about program that few lending sources offer. These lenders can usually get you 3-5 times the approvals that you can acquire on your own. This is because they directly know the sources to apply for, the order in which to apply, and can even time their applications so the card issuers won’t decline you for the other card inquiries. This is a powerful form of credit infrastructure and planning at work.
The result of their services means you usually get up to 5 cards that mimic the credit limits of your highest limit accounts currently. Multiple cards will generate competition, and this means you can also get your limits raised typically within 6 months or less of your initial approval. With UBF, lenders will get you 3-5 business credit cards which only report to business credit reporting agencies. This is huge—something most lenders don’t even offer or advertise. Not only will you obtain funding, but this process will also help you to build your business credit. Within 3-4 months, you can then use your newly established business credit to obtain even more money!
Lenders can also get you low intro rates, typically 0% for 6-18 months. After that, normal rates will be incurred, usually ranging between 5-21% APR with 20-25% APR for cash advances. These offers will also get you the best cards for points, meaning you’ll earn the best rewards for your investments. Approval limits will also mimic that of your personal credit cards, with approval limits ranging from $2,000-$50,000. Having multiple will also mean you can get up to 5 times the amount of your highest credit limit account. Approvals can even go up to $150,000 per entity, such as for a corporation.
Some stipulations in considering unsecured business financing should be mentioned. You must have excellent personal credit now in order to apply, preferably with a score of 700+. The same should also be sure for any business credit cards you may have. You also shouldn’t have any derogatory credit reported to get approved. You must have open revolving credit on your consumer reports currently, and have 2 inquiries or less within the last 6 months reported. You can also get approved using a guarantor, or even multiple guarantors to get you even more money.
Keep in mind that all lenders in the UBF space charge a 9-12% success based fee. Meaning, you only pay the fee off of what you secure. Remember that you also receive lots of extra benefits and about 3-5 times more money with this program than you’d get working on your own, which is why there’s a fee.
Just like with anything else, opting for UBF has huge benefits since you are working with a source who literally specializes in this area. The results will be much better than if you try to go into it alone!
Unsecured Business Financing – Consumer Reporting
There are also other cards you can obtain using this same UBF program. Some of them, however, only report to consumer reporting agencies, as opposed to business agencies. They are based within consumer credit versus the business credit cards.
Consumer reporting UBF lenders will provide similar benefits as business reporting UBF, such as 0% intro APRs and 5 times the amount of approval of a single account or card. However, these lenders are much easier to qualify with. You can get approved with a 680 score and with up to 5 inquiries in the last 6 months. You can even have derogatory items listed on your credit…and get approved.
Unsecured Credit Cards Using Business Credit
Just as with the previous cards mentioned, you need to have good consumer credit to get approved for this kind of financing. If your personal credit isn’t good or you don’t have a guarantor, building good business credit makes a lot more sense Even if you have good personal credit, building your business credit helps open up an extra avenue for even more money, and without a personal guarantee.
Business credit is credit that’s in a business’s name and that’s linked to the business’s EIN, not the owner’s SSN. When carried out properly, business credit can be obtained with no personal credit check and no personal guarantee…something all other cards can’t deliver.
Unsecured Vendor Accounts
Most consumer credit starts with secured credit cards or an account that has a well-established co-signer. However, co-signed accounts and secured accounts aren’t really popular or even widely used in the business world. Most business credit rather starts with vendor accounts instead.
Vendor accounts are accounts that typically offer terms such as Net 30 instead of revolving. If you happen to get approved for $1,000 in vendor credit and use all of it, you’d need to pay that money back in a set term, such as within 30 days on a Net 30 account. Unlike with revolving accounts, you have a set time you must pay back what you borrowed or the credit that you used.
To kick off your business credit profile the right way, you need to get approved for vendor accounts that report to the business credit reporting agencies. Once you have done this, you can then use the credit, pay back what you used, and the account will subsequently get reported to Dun & Bradstreet, Experian or Equifax. Once reported cyclically over time, you will have trade lines, an established credit profile and a solid credit score.
Using your newly established business credit profile and score, you can get approved for cash credit and eventually store credit, without needing even supply your SSN or personal guarantee. This is possible now because your EIN credit profile has been established, and can stand on its own. If you leave your SSN off of the application, the credit issuer will pull your EIN credit, see a solid profile and score, and approve you for real, revolving credit.
Starter Vendor Accounts
Starter vendors are those types of vendors with whom you will first need to start your business credit and profile up with. Starter vendors are those who will give you initial credit even if you have no credit, no score or no trade lines. Most stores, such as Staples, will not give you initial starter credit, so don’t even try to apply. Some true starter vendors include companies such as Laughlin Associates, Quill Office Supplies and Uline Shipping Supplies.
Unsecured Store Business Credit
You will need 5 payment experiences, such as with vendor accounts, to start getting approved for revolving store credit cards by using only your EIN for approval. These credit cards can be found at places like Best Buy, Lowes, Staples, Amazon, Dell, Walmart, Apple and so on. You will need a total of 10 payment experiences to get approved for cash credit such as Visa and MasterCard types of cards. To get cash credit, you’ll also need to have one of those payment experiences to be an account having a limit of $10,000 or higher. This will help you obtain decent limits on the cash credit you secure.
These types of business credit store cards usually have limits which are 10-100 times that of consumer credit. They function the same as consumer cards, but they don’t report to consumer reporting agencies. they do, however report to the business bureaus—helping you further establish your business credit.
In most cases, you can usually get approved with no personal guarantee. With initial business credit already having been established, you can get approved by even leaving your SSN off the application. This means you won’t be supplying a personal credit check for approval.
Unsecured Cash Business Credit
One you have 10 payment experiences reported, you can start getting cash business credit cards. These are cards such as Visa, MasterCard and American Express. They can be used anywhere, and not just in specific stores. They also work similar to UBF cards, but there is no personal credit check or guarantee required for approval.
High Limit Credit Lines
Some conventional banks and private lenders may also offer high-limit credit lines. You may see limits with these accounts as high as $50,000-$250,000. These are the types of accounts that we see most business owners truly desire above all. Approvals for these accounts requires good personal credit, and you must also have good business tax returns for 2-3 years showing increasing profits. The net revenue on your tax returns will be equivalent to the amount you can get approved for. Some sources may also require collateral, however most don’t. You will need to supply a personal guarantee for high-limit credit line approval.
It’s important to keep in mind that while credit lines and credit cards function almost exactly the same, one key difference is that credit cards offer reward points and intro rates of 0%—credit lines typically don’t. You can, however, use credit lines to obtain cash advances at much lower rates than with credit card
Unsecured Cash Advances
Cash advances, also known as merchant advances, revenue lending and cash flow financing are great ways to obtain fast and easy money. You can get approved if you have been in business for one years or more, even if your FICO score is as low as 500! This is about the only type of unsecured financing which doesn’t require good personal or business credit for approval.
Lenders will, however, look at your most recent 6 months of bank statements to determine your approval. You should have revenue of $120,000 or more annually, and have 10 or more deposits monthly. This being said, you should manage your bank account responsibly—ensuring you have a balance left over each month and few to no NSF charges. If you meet all these criteria, you can usually be approved and obtain funding within 72 hours. Terms are usually 3-6 months initially, and you can then refinance when half your loan is paid down. From there, you get financing for 6-18 month terms. Note that rates are usually very, very high, as this is the highest risk money you will find. This is also the easiest financing to qualify for, meaning you’ll see rates of paying 15-45% interest, and money is paid daily.
Great Offers From TyeStyle Solutions for Reliable Business Credit Cards
If you are looking for some good recommended options for robust credit cards or services to help launch your business or further its growth, look no further! We at TyeStyle Credit Solutions are here to assist by providing insight into some great business loan options for powerful business credit solutions which will help you succeed.
Divvy
The Divvy credit card is a spend management solution which gives you the credit you need and the software to manage it. Divvy makes it easy to access the funding you need, no matter the size of your business. Apply for a new credit line in seconds and start spending smarter for your whole team. Business purchases which occur on Divvy cards are categorized with just a few taps on your phone. This helps eliminate out of pocket reimbursements and manual expense reports. You can build a budget seamlessly with admins and users, divvy out funds, and watch the spend come in—exactly on target. With real time tracking and controls, you won’t ever go over budget again. Divvy allows you to receive, account for and pay invoices with just a couple of clicks. You can track invoices alongside other expenses to improve total spend visibility. Divvy has no hidden fees or contracts, and you can get as many physical or virtual cards as you need. Add-ons are also a fraction of the price as the competition’s.
Self Visa Credit Card
With a Self Visa Card, you can get access to financing in as little as 3 months with no hard pull on your credit. If you don’t have credit history, Self’s Credit Builder Account helps you build credit with 3 of the leading credit bureaus. There are also many benefits to this account. It’s convenient and available in all 50 states—and unlike most credit unions, Self is available online and via the mobile app. Self helps you establish a payment history, something that is key to building credit as it makes up 35% of your credit history. Self is a secured credit card, which ensures a safe passage towards a solid credit profile.
