Secured Business Line of Credit: How to Find the Best

The ultimate guide to finding secured line of credit financing.
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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.

A line of credit differs from a regular small business loan. Small business loans offer access to a fixed amount of capital that you pay back with interest over a specific period of time. In contrast, a business line of credit gives you access to a maximum credit limit that you can draw from as needed. You only pay interest on the money that you use. A variety of lenders offer secured business lines of credit, including traditional banks, alternative lenders, and even the Small Business Administration (SBA).

In this guide, we’ll walk through everything there is to know about finding and qualifying for the best secured business line of credit possible.

Secured Business Lines of Credit: Your Top Options

The terms and rates on secured business lines of credit can vary widely based on the type of lender you decide to work with. This product is offered by traditional banks, online alternative lenders, and the SBA.

Here’s what you need to know about these secured business line of credit 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 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 as well.

The following lenders are good options for secured business lines of credit:

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1. The Credit Junction

The Credit Junction is a line of credit lender that offers very large credit lines secured by inventory. Their line of credits range anywhere from $500,000 to $7.5 million.

Interest rates on this secured line of credit product range from 12% to 18%, with their median APR sitting at 16%.

As a secured business line of credit lender, The Credit Junction Credit requires all principals in the business to sign a personal guarantee. The extent to which you need to personally guarantee the financing is discussed and adjusted on a case-by-case basis.

Read our detailed Credit Junction review for more information.

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2. InterNex Capital

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, which is even larger than The Credit Junction’s options. 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.

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3. Fundbox

Another secured line of credit lender is Fundbox. Much like InterNex Capital, they’ll allow you to access a business line of credit secured by your business’s outstanding invoices.

Fundbox offers much smaller lines of credit, ranging from $1,000 to $100,000. Their rates are also higher at 0.5% to 0.7% of the invoice’s face value every week it goes unpaid.

That said, these higher rates are largely due to the fact that Fundbox offers very accessible financing. 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.

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4. BlueVine

BlueVine is a secured line of credit lender that’s similar to Fundbox. BlueVine also fronts capital in exchange for your unpaid invoices as collateral. The difference is that BlueVine lends higher amounts of money.

Secured lines of credit at BlueVine go up to $5 million depending on the value of your unpaid invoices, though applications for more than $250,000 require more paperwork.

BlueVine will grant you 85% to 90% of your invoice’s value up front, and you’ll get the remainder when your customer pays the invoice. This also differs from Fundbox, who will front you 100% of the invoice value. 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 with BlueVine.

Read our detailed BlueVine review for more information.

Secured Business Lines of Credit From the SBA

You might know the Small Business Administration (SBA) best for their most popular SBA loans. However, they also offer several secured business line of credit options. There are several different kinds of SBA lines of credit.

The SBA usually grants pretty wide deference to their partner lenders in deciding how much and what type of collateral to require. 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 years. Several community banks and smaller banks participate in the SBA’s secured line of credit programs.

Defining "Secured" in Secured Business Line of Credit

secured business loan is kind of like it sounds: It’s a loan that’s secured by some type of asset. That asset is called collateral. A secured loan essentially promises the lender that you’ll pay the financing back, plus interest. If you don’t pay the loan back, a lender of a secured business loan would have the right to seize the collateral or make good on your guarantee to recoup their losses.

Secured business financing removes the risk of working with small business owners, and lenders require security for many types of loans, including business lines of credit.

While you’ll have to put up some collateral in order to get the secured business line of credit, you’ll also end up getting a better loan offer because of it. Remember, you’ve removed the risk that the lender loses the money they give you, so they can charge less in interest, and sometimes give you higher loan amounts and better terms.

Secured Business Lines of Credit: How They Work

A secured business line of credit requires you to offer up something valuable on your end. 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 to have most because it’s most likely to retain value, but it’s not the 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 putting up a significant amount of risk to your valuable collateral. In case you do default on the loan, you can lose the assets you put up as collateral.

Secured Business Line of Credit: The Benefits

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 risk for the lender.

If you’ve given them a way to feel confident 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.

When Unsecured Business Lines of Credit Work Well

There are a lot of benefits to getting a secured line of credit. But when should you look for an unsecured business line of credit instead? For an unsecured business line of credit, there’s no need to secure the credit line with collateral.

There are a few scenarios in which an unsecured option makes more sense for borrowers.

First off, many small business owners don’t have enough valuable assets or personal savings to offer on secured business lines of credit. In that scenario, it’s a no-brainer to go the unsecured route.

Some borrowers also don’t want to risk their assets and savings. If there’s a chance you won’t be able to pay your loan in full, then you can stand to lose a lot. If you aren’t willing to risk losing your assets, then unsecured business lines of credit would be better for you.

Additionally, if you’ve been in business for longer, and you have stronger financials (a good credit score and annual revenue), then a secured line of credit probably isn’t the best option for you. You could probably qualify for a low-rate, long-term unsecured line of credit.

Unsecured Business Lines of Credit and Personal Guarantees

A personal guarantee is a legal agreement you sign promising to pay back the loan personally if your business cannot repay. Essentially, you are the co-signer on the loan for your business. Even if you yourself are not connected to your business legally, you’d still have to pay the loan your business defaulted on with your personal assets.

Just like seizing collateral, a lender could take advantage of your personal guarantee if your business can’t end up paying back the financing. If there’s no specific collateral securing a business line of credit, just a personal guarantee, it will still be referred to as an unsecured business line of credit, even if in practice it works much like a secured business line of credit.

There are a few types of personal guarantees. One is a secured personal guarantee, which is secured by a business owner’s personal assets, like their home equity. Another option is an unsecured personal guarantee, where the lender simply relies on the good faith of the borrower.

Additionally, there are unlimited and limited personal guarantees.

An unlimited personal guarantee, as it sounds, gives the lender rights to recover 100% of the loan amount, plus any legal fees associated with the loan. On the other hand, a limited personal guarantee sets specific parameters of what can and cannot be seized in the event of a default. A limited guarantee is usually capped by a dollar amount the lender can take from you.

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 line of credit means you are accepting a bigger risk to your business. In case you can’t pay your financing back, lenders will take 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 that you could be 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 security is often the ticket to lower interest rates and better borrowing terms for your business.

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