Secured Business Line of Credit: Everything You Need to Know
A secured business line of credit is a credit limit that’s backed by a valuable asset. Secured business lines of credit allow business owners to leverage their assets to access affordable working capital. If you have the collateral necessary to access a secured line of credit, this funding option can offer your business higher credit limits and lower rates.
In this guide, we’ll walk through everything there is to know about this business loan option.
Best Secured Lines of Credit
Secured Business Lines of Credit: Your Top 7 Options
Secured Business Lines of Credit From Traditional Banks
Traditional banks—both large and small—are the most common lenders for secured business lines of credit. When you’re looking for a secured business line of credit, you should start with banks because they offer the lowest rates, largest amounts, and longest terms.
Which banks should you pursue for a secured business line of credit? The best banks for business loans, and specifically for secured business lines of credit, include Wells Fargo, Bank of America, PNC, and U.S. Bank. If you can qualify for these lines of credit, you’ll have a hard time finding a better option for your business.
However, bank loans and lines of credit are notoriously hard for small business owners to qualify for. You’ll need to have been operating your business for at least a couple of years, have a strong credit score, and impressive business financials to qualify.
Secured Business Lines of Credit From Alternative Lenders
When traditional bank loans aren’t available to you, another source of secured business lines of credit is alternative lenders. These non-bank, digital asset-based lenders work with a wider set of borrowers and offer financing over a much faster timeline than banks do. However, alternative lenders are more expensive to work with.
InterNex Capital offers a revolving line of credit that’s secured by a business’s accounts receivables. This means InterNex will treat your invoices as collateral for this type of financing.
Your accounts receivable represent tangible value that can be easily liquidated into cash. InterNex extends capital in the form of a line of credit, backed by the value of your outstanding invoices. If you end up not being able to pay InterNex Capital back, they can collect on your invoices to recoup their losses.
InterNex Capital offers a secured business line of credit ranging from $250,000 to $10 million. Rates range from 7.99% to 17.99%, with their median interest rate being 14%.
Beyond the collateral offered by your invoices, InterNex Capital will also require business owners owning more than 20% of the business to sign a personal guarantee as further security.
Read our detailed Internex Capital review for more information.
Another secured line of credit lender is Fundbox, which offers smaller lines of credit ranging from $1,000 to $100,000. Their interest rates start at 4.66% of the amount you draw.
To qualify, you’ll just need six months in business and accounting software records. Fundbox’s business loan application simply involves creating a Fundbox account and linking it to your business accounting software.
From there, Fundbox’s automated underwriting will decide whether you qualify and what terms you qualify for. And if you decide to go with Fundbox, you’ll be able to access a secured business line of credit within a few hours.
Read our detailed Fundbox review for more information.
BlueVine is a secured line of credit lender that offers traditional lines of credit up to $250,000, as well as invoice factoring lines of credit up to $5 million. The latter will be secured by your unpaid invoices, and the amount you’re approved for will depend on the value of these invoices.
Businesses that have been operating for at least three months, have a personal credit score of 530 or higher, and have monthly revenues of $10,000 or more are eligible to apply for BlueVine’s invoice factoring product, while businesses with six months in business and 600+ credit scores can apply for their traditional line of credit.
Read our detailed BlueVine review for more information.
Next we have Kabbage, which offers smaller, short-term lines of credit of up to $250,000 over terms of six, 12, and 18 months.
What’s more, Kabbage has fairly lax qualification standards on their line of credit product: just $50,000 in annual revenue and at least one year in business. On top of that, Kabbage does not look at your personal credit score.
Kabbage can fund loans as quickly as the same day you apply, but it can take up to three business days. When you apply for a Kabbage line of credit, you’ll also have to provide a personal guarantee.
Read our detailed Kabbage review for more information.
If you’re looking for a very short term or revolving secured business line of credit, consider OnDeck Capital. OnDeck can provide business owners with lines of credit ranging from $5,000 to $100,000 over six-month terms.
Most importantly, the APRs on an OnDeck line of credit are less expensive than what you’d get with Kabbage, starting as low as 8.5%.
To qualify, you’ll need a 600 personal credit score, one year in business, and at least $100,000 in annual revenue.
Read our detailed OnDeck Capital review for more information.
Secured Business Lines of Credit From the SBA
You might know the Small Business Administration (SBA) best for their popular SBA loans. However, they also offer several secured business line of credit options, including a line of credit for seasonal businesses, a working capital line of credit, a contract loan, and a builders line of credit.
The SBA usually grants pretty wide deference to their partner lenders in deciding how much and what type of collateral to require, but SBA lines of credit are usually secured by a business’s inventory or accounts receivable. If business assets don’t fully secure the credit line, then the lender might ask you to submit some personal assets as collateral as well.
Like traditional bank lines of credit, the challenge is that SBA lines of credit can be difficult to qualify for. They are typically reserved for high-credit borrowers and businesses that have strong cash flow and have been operating for at least a couple of years. Several community banks and smaller banks participate in the SBA’s secured line of credit programs.
How Does a Secured Line of Credit Work?
A secured business line of credit requires you to offer up something valuable on your end, called collateral. The most common type of collateral for any type of financing is physical property—whether that’s your personal or commercial property. Real estate is often the type of collateral that lenders prefer because it’s most likely to retain value. However, it’s not your only option.
You could also offer inventory, equipment, cash savings, invoices, or bank accounts to secure a business line of credit. All collateral really needs to be is an asset that holds value for the lender. Different lenders might express a preference for different types of collateral. However, they all want something they can easily seize and liquidate for cash. That’s how they’ll get their money if you end up not being able to repay your loan.
It’s important to note that, while secured business lines of credit offer desirable financing options, you are your collateral at risk if you default. Before you move forward with any loan applications, make sure you have a plan for how you’ll pay back the loan.
Secured Business Line of Credit: Pros
Why would you want to pursue a secured business line of credit, versus an unsecured business line of credit? In either case, you’ll get a credit limit for your business to tap into whenever you want or need the money. You’ll only pay interest on the funds you draw, and once you repay them, your line of credit gets renewed to its original amount.
When choosing between a secured business line of credit and an unsecured one, there are some specific benefits to weigh with the secured type of financing.
Easier to Qualify For
Remember, offering collateral or a personal guarantee removes a degree of risk for the lender.
If you’ve given them confidence that they’ll get their money back, they might be more willing to work with you.
For this reason, some types of secured business lines of credit can be easier to qualify for than unsecured lines of credit.
Better Rates and Terms
In general, lenders charge high interest rates when they work with riskier portfolios. By charging high interest rates, they’ll end up recovering the costs of lending to you by interest alone—protecting them against the chance that you can’t pay them back.
However, offering a secured business line of credit is a less risky scenario for the lender. For that reason, you might find that you qualify for more favorable line of credit rates and terms for your business.
Secured Business Line of Credit: Cons
While there are many benefits to a secured business line of credit, there are also some things to be wary of. For example, a secured business line of credit can be difficult to qualify for if you don’t have much of a financial track record.
Here are some other considerations when it comes to secured business lines of credit:
The one big thing to keep in mind with a secured business line of credit is that, if you pay late or exceed your credit limit, you could be hit with some huge fees. This won’t be a problem if you’re using your line of credit for operating expenses, but if you’re spending on big-ticket items, you’re better off going with a term loan.
Potential for Misuse
As previously mentioned, a secured business line of credit should really be thought of as an emergency fund in the event of a cash flow shortage. It shouldn’t be a fund you are drawing from to cover all your expenses. Just like with credit cards, it can be very tempting to pay with your business line of credit, but if you’re unable to repay your balance in full, you’ll be in trouble.
Secured Business Line of Credit FAQs
Secured Business Lines of Credit: The Bottom Line
There you have it—everything you need to know about secured business lines of credit, and which lenders offer you the best options.
On the one hand, getting a secured business line of credit means you are accepting a bigger risk to your business. In case you can’t pay your financing back, lenders will seize your assets to recoup their losses. Be sure to think closely about your ability to repay your loan in full, and your tolerance for the risk of potentially losing valuable business and personal assets in the end.
On the other hand, getting a secured line of credit means that you’ll have an easier time accessing lower-cost financing. Providing assets as collateral is often the ticket to lower interest rates and better borrowing terms for your business.