Secured Business Credit Line

Business lines of credit are the optimal form of financing for a small business owner to have. However, they come with some of the most stringent qualification requirements.

That’s where a secured business credit line comes in.

Here’s what you need to know about a secured line of credit, what your options are, and how to get the most out of it.

What Is a Secured Business Credit Line?

A secured business line of credit is a revolving credit line backed by collateral.

It functions similarly to a business secured credit card; You provide the desired collateral, you get a credit limit equal to the amount of collateral you’re able to offer, and then you borrow from your line of credit as you see fit.

Unlike other business loans (like a term loan), you can keep borrowing from your business line of credit during the draw period. Once you pay back what you’ve borrowed, you have access to the total loan amount.

Secured vs Unsecured Business Lines of Credit

A secured business line of credit is one that you use collateral to secure. An unsecured line of credit is one you acquire without having to offer up any collateral.

But what does this basic difference mean in terms of your experience with a business line of credit?

A secured line of credit is often characterized by:

• Lower Interest Rates: Because you’re backing your credit line with collateral, you may find that your lender will be willing to offer you lower interest rates.
• Long Application Process (But Greater Chance of Approval): Business owners should expect a longer application process with a secured business line of credit. That said, the use of collateral can increase your chances of application and credit approval.
• Greater Risk: A secured credit line poses a greater risk since there’s collateral involved. Should you default, whatever you used for collateral will be taken from you.
• Better Credit Limits: One advantage of a secured credit line is better credit limits. You can get a much higher credit limit with a secured line, limited to what you’re able to leverage for collateral.

An unsecured line of credit features:

• (Potentially) Higher Interest Rates: An unsecured line of credit may come with higher interest rates. These interest charges will depend on various factors related to your small business.
• More Difficult to Qualify for: Your bank or credit union will have more stringent qualification guidelines if you want an unsecured loan. This includes credit in good standing, plenty of money in your bank account, strong revenue, and more.
• No Collateral, But Likely a PG: You won’t need collateral for an unsecured line of credit. However, you may need to sign a personal guarantee. In this case, you may still see your assets seized if you default on your loan.
• Quicker Funding: Because there’s less time reviewing your proof of collateral, unsecured business lines of credit often result in quicker funding. This helps you with cash flow problems faster.

Consider other funding options as well. For example, you might ask, “What Secured Credit Card Builds Credit the Fastest?”. There are many secured business credit cards that report to D&B and help you finance your small business.

Types of Collateral Accepted for Secured Business Credit Lines

Knowing that you can use collateral to secure a business line of credit can prove helpful in your funding strategy. But what types of collateral will lenders allow you to use or ask your small business for?

Lenders may accept a wide range of types of collateral. This could include something more traditional, like cash or investments. It may also encompass real estate, equipment, and inventory.

It’s important to remember that, secured or unsecured, you may be asked for other forms of “collateral” as well.

We’ve already touched on a personal guarantee. Should you end up in debt and unable to pay off your debt, your personal assets can be seized. Lenders may also ask for a business lien, which will give them the ability to take some or all of your business assets if you default.

Take care to plan ahead for your secured line of credit. Only apply for a credit limit you feel comfortable managing.

Best Secured Business Lines of Credit

Bank of America Cash Secured Business Line of Credit

The BoA Cash Secured Line of Credit is a great choice for the average small business. If you have at least $50,000 in annual revenue and six months in business, you can qualify for this secured business line of credit.

The Cash Secured Business Line of Credit offers:

• A low minimum deposit of just $1,000.
• The ability to graduate to an unsecured line of credit. They conduct credit reviews on your Cash Secured Business Line of Credit annually. You can graduate with on-time payments, two years in business, and $100,000 in annual revenue.
• No origination fee.
• An annual fee of $150, which is waived the first year.
• A refundable security deposit. You can get your cash back over time.

PNC Secured Business Line of Credit

PNC is a bit more tight-lipped about what you receive with their secured business line of credit. However, it is a solid option if you have a fair amount of collateral you’re willing to use to secure a higher credit limit.

What can you expect with PNC’s Secured Business Line of Credit? Here’s a glimpse of some of the key features.

• PNC offers secured lines of credit starting at $100,001. If you need (and are willing to fund) a higher credit limit for increased cash flow, this is a solid choice.
• Variable rates, which are based on the current Prime Rate.
• They make it easy to access your funds. You can write a check or transfer funds to your PNC business checking account.
• They have an annual fee of 0.25% of your committed line amount.
• They will take non-real estate business assets as collateral.

Wells Fargo Secured Business Line of Credit

The Wells Fargo Secured Business Line of Credit, also referred to as the Prime Line of Credit, is harder to qualify for than other secured lines of credit on this list.

The Prime Line of Credit is designed for much larger businesses. You’ll need an annual revenue of anywhere from $2 million to $25 million to qualify.

If you do have that, you can access:

• A credit limit of anywhere from $100,000 to $3 million. You can get terms of an up to 3-year secured revolving credit line of anywhere from $100,000 to $500,000 or a 1-year secured revolving credit line of anywhere from $500,001 to $3 million.
• Rates as low as Prime plus 0.50%.
• No cash advance fee (among other benefits).

They do charge a 0.25% annual fee.

Navy Federal Secured Business Line of Credit

The Navy Federal Secured Business Line of Credit is good for established businesses looking to bolster cash flow and manage unexpected expenses and other operational costs. You will need at least $100,000 in annual revenue to qualify.

They offer credit lines starting at $10,000. They also offer a variable rate tied to Prime. While they list that there are fees, they don’t offer details. You’ll have to contact a business loan officer for more information.

They do, however, offer a comprehensive list of all the things you’ll need to apply. This will make it easy to prepare ahead of time for the best chances of approval.

How to Qualify for a Secured Business Line of Credit

So, what will you need when you’re applying for a secured business line of credit? Some of the top qualification requirements to focus on include:

• Meeting a specific annual revenue requirement.
• Meeting a specific time-in-business requirement.
• Having the necessary collateral AND being able to provide proof of collateral.
• Having business tax returns, personal tax returns, and other required financial statements.
• Good credit. You’ll be subject to credit approval.
• Be willing to sign a personal guarantee.
• You may also need a low debt-to-income ratio. A lender may not give you a line of credit if you’re already overborrowing and overextending yourself.

Using a Secured Business Line of Credit Effectively

As with any form of financing, it’s important to know how to make your line of credit work for you. Here are a few helpful tips that will help you make the most of your new credit line.

• Make sure you’re using your credit line responsibly. Don’t use all of the available funds, as this can affect your credit (if reported to credit bureaus) and could easily result in debt you’re unable to pay back your outstanding balance.
• Look to obtain several business lines of credit. This gives you more borrowing power so that you can better provide your small business with working capital.
• Make sure to pay down the balance so that interest doesn’t creep up on you. Even though secured lines of credit have lower interest rates, you could still end up with difficult-to-manage debt if you’re not careful.

A secured business line of credit can be one option to fund your business if you’ve already built up sufficient credit with business tradelines but aren’t able to qualify for traditional lines of credit.

Weigh your options and consider the above advice to make the most of secured lines of credit. If you want to build business credit, fund your business needs without undesirable terms, and work toward acquiring unsecured lines of credit, start here with FairFigure!