An unsecured loan is one that is obtained without the use of property as collateral for the loan. This type of loan is issued and supported only by the borrower’s creditworthiness. Obtaining an unsecured business line of credit can be quite simple, if you meet the criteria for approval. If you’ve considered working with a Financial Institution to secure an unsecured business line of credit, you may want to know a few things that will help you better prepare yourself before you get started. Preparing yourself before you apply for any type of financing for your business is the wise thing to do. This is because every lender out there has a set of criteria/requirements that you will need to get approved. Here’s the most important criteria you’ll have to meet if you want to get an unsecured business line of credit:

1. Your Personal Credit Card Balances Should Be Low – If you have personal credit cards, you will have a better chance of getting approved for unsecured business lines of credit if your balances are low. We suggest that your personal credit card balances be under 30% of your total available limits. For example, if you have a personal credit card with a $5,000 limit, your outstanding balance should be no more than $1,500 (which means you would have $3,500 available to use on the credit card). As a rule of thumb, the lower your credit card balances and the higher your credit card limits, the better chance you have of getting approved for an unsecured business line of credit. If you have personal credit card balances, you will need to pay them down before you can proceed with your lending request.

2. You Should Have a Track Record with Managing Lines of Credit – Your personal credit cards should be at least 5 years old and showing up on your personal credit report as open and active. This proves to the lender that you have a track record with managing lines of credit. If you’ve never had any personal lines of credit/credit cards, you will have a difficult time securing unsecured business lines of credit. Lenders view it as having lack of experience in managing line of credit financing and will see you as a high risk borrower. It would be wise to obtain unsecured personal lines of credit first (to build up your credibility in this area).

3. Your Credit History Should be “Blemish Free” – Your credit history should be free of recent late payments (i.e. payments less than 2 years old), charge offs, collections, public records, etc. We prefers to work with business owners who have exceptional credit histories because the process of getting approved for unsecured business lines of credit is much simpler when your credit is good. However, our experts have worked with business owners that had a paid collection or two and still got approved. Other derogatory or delinquent accounts can greatly reduce your chances of getting approved — this includes more than one recent late payment, unpaid charge-offs, bankruptcies, and unpaid tax liens, etc. It may serve you well to also consider an outside credit restoration program and counseling (before you apply for an unsecured business line of credit) if you have a few blemishes on your credit report.