In the business lending arena there are two main types of financing; secured and unsecured financing.
Secured financing: this includes money that requires some type of asset be pledged as collateral for the loan
Unsecured financing: this includes money that doesn’t require any collateral for approval
Unsecured financing is financing that is not secured by any kind of collateral, meaning it is money that’s “unsecured” Nothing is pledged as collateral for the debt. If the borrower defaults, the lender can pursue the borrower legally and their assets but they don’t have a right to just take certain assets just due to the default.
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
In 15 years, 75% of businesses will have closed down, for good
Most businesses fail, making the business lending space very risky
With secured financing, the lender would just take back the asset pledged as collateral. This helps them quickly get back part of their loss. Since the risk isn’t as high with secured financing, borrowers can often get great interest rates, as low as 2 – 5%.
Unsecured financing is the riskiest type of business lending because if the borrower defaults the only way the lender can get back their loss is to pursue legal action. Legal action can be very costly, and not something any lender wants to pursue. This is part of why unsecured financing is so high risk, and why some of the rates you’ll see will be much higher than with secured financing.
Types of Unsecured Financing
Unsecured Business Credit Cards
Most banks offer unsecured business credit cards. Most unsecured business credit cards report to the consumer credit reporting agencies. Also, most unsecured business credit cards require a personal guarantee from you.
You can get approval usually for one unsecured business credit card at the most. This is because lenders stop approving you when you have 2 or more inquiries on your personal credit report. Examples of an unsecured business credit cards include:
Annual Fee $0
$750 bonus cash back after you spend $7,500 on purchases in the first 3 months after account opening
0% intro APR for 12 months from account opening on purchases. After that, 13.24%–19.24% variable APR
Employee cards at no additional cost
Unlimited 1.5% cash back rewards on every purchase
24.99% cash advance rate
Annual Fee $0
$500 bonus cash back after you spend $3,000 on purchases in the first 3 months after account opening
0% fixed Intro APR for the first 12 months that your Account is open. After that, 13.24% to 19.24% APR
24.99% cash advance rate
Earn 5% cash back on the first $25,000 spent in combined purchases at office supply stores and on internet, cable and phone services each account anniversary year
Employee cards at no additional cost
Purchase Rate: 0% intro APR for 9 months; 13.99% - 23.99% variable APR after that
Unlimited 1.5X miles per dollar on every purchase, every day - plus 5X miles on hotel & rental car bookings through Capital One Travel
Earn a one-time bonus of 20,000 miles – equal to $200 in travel – once you spend $3,000 on purchases within the first 3 months from account opening
Annual Fee: $0
$0 annual fee
0% introductory APR for 12 months. After that, your APR will be a variable rate, 13.24% - 19.24%
2% cash back up to $50K in purchases per calendar year. 1% cash back on all purchases after that
Credit Line Hybrid
Typically, when you apply for a credit card you put an inquiry on your consumer report. When other lenders see these, they won’t approve you for more credit because they don’t know how much other new credit you have recently obtained. Typically lenders will only approve you if you have less than 2 inquiries on your report within the last 6 months… and more will get you declined.
With a credit line hybrid, you work with a lender who specializes in securing business credit cards. This is a VERY rare, very little know about program that few lending sources offer.
These specialized lenders can usually get you 3 – 5 times the approvals that you can get on your own. This is because they know the sources to apply for, the order to apply, and can time their applications so the card issuers won’t decline you for the other card inquiries.
The result of their services is that you usually get up to 5 cards that mimic the credit limits of your highest limit accounts now. Multiple cards create competition, and this means you can get your limits raised typically within 6 months or less of your initial approval.
With a credit line hybrid they get you 3 – 5 business credit cards that report only to the business credit reporting agencies. This is HUGE, something most lenders don’t offer or advertise. Not only will you get money, but you will also build your business credit. So within 3 – 4 months, you can then use your newly established business credit to get even more money.
The lender can also get you low intro rates, often 0% for 6 – 18 months. You’ll then pay normal rates after that, typically 5 – 21% APR with 20 – 25% APR for cash advances. Also these specialized lenders will get you the best cards for points, meaning you get the best rewards.
Just like with anything, there are HUGE benefits in working with a source which specializes in this area. The results will be much better than if you try to go at it alone.
Credit Line Hybrid Summary
Approval limits will mimic that of your personal cards now
Approvals usually range from $2,000 – 50,000
You’ll usually get 3 – 5 cards, so that means you can get up to 5 times that of your highest credit limit accounts now
Approvals can go up to $150,000 per entity such as a corporation
Credit Line Hybrid Requirements
You must have excellent personal credit now, preferably 700 + scores… the same as with all business credit cards
You shouldn’t have ANY derogatory credit reported to get approved
You must also have open revolving credit on your consumer reports now
You’ll need to have 4 inquiries or fewer in the last 6 months reported
Credit Line Hybrid Cost
Lenders in this space charge a 9 – 12% success-based fee.
You only pay the fee for what you get.
Remember, you get a ton of extra benefits and about 3 – 5 times more money with this program than you’d get on your own… which is why there’s a fee
Credit Line Hybrid Guarantor
You can get approved using a guarantor
You can even use multiple guarantors to get even more money
Note: you cannot use multiple guarantors for the same EIN within a year
Credit Line Hybrid: Consumer Reporting
There are also other cards you can get using this same program. However, these cards only report to the consumer reporting agencies, not the business reporting agencies. They are consumer credit cards versus business credit cards.
These cards provide similar benefits including 0% intro APRs and 5 times the amount of approval of a single card. Yet they’re much easier to qualify for.
You can get approved with a 680 score and 5 inquiries in the last 6 months
You can have a bankruptcy on your credit, and other derogatory items
These are much easier to get approved for than credit line hybrid business cards
Unsecured Credit Cards… Using Business Credit
With all previous cards mentioned, you need to have good consumer credit to get approved. Yet what if your personal credit isn’t good, and you don’t have a guarantor?
This is when building business credit makes a ton of sense. Even if you have good personal credit, building your business credit helps you get even more money, and without a personal guarantee.
Business credit is credit in a business name, that’s linked to the business’s EIN number, not the owner’s SSN. When done properly, you can get business credit with no personal credit check and no personal guarantee. This is something all other cards mentioned can’t deliver.
Unsecured Vendor Accounts
Most consumer credit starts with secured credit cards or an account that has a well-established co-signer. Yet co-signed accounts and secured accounts really aren’t popular or widely used in the business world. Most business credit starts with vendor accounts instead.
Vendor accounts are accounts that typically offer terms such as Net 30, instead of revolving. So if you get approved for $1,000 in vendor credit and use all $1,000 of it, you’d need to pay that money back in a set term, such as within 30 days on a Net 30 account.
A Net 30 account would need to be paid in full within 30 days. In contrast, a Net 60 account would need to be paid in full within 60 days. Unlike with revolving accounts, you have a set time you must pay back what you borrowed or the credit you used.
So to start 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’ve done this, you can then use the credit, pay back what you used, and the account gets reported to Dun & Bradstreet, Experian, or Equifax. Once reported, then you have trade lines, an established credit profile, and an established credit score.
Using your newly established business credit profile and score, you can then get approved for cash credit, and eventually store credit, without needing to supply your SSN or personal guarantee. This is possible because now your EIN credit profile is established, and can stand on its own. So if you leave your SSN off the application, the credit issuer then pulls your EIN credit, sees a solid profile and score, and can then approve you for real revolving credit.
Starter Vendor Accounts
You must start a business credit profile and score with starter vendors. Starter vendors are ones who will give you initial credit even if you have no credit, no score, or no trade lines now. Most stores like Staples will not give you initial starter credit, so DON’T even try applying.
Unsecured Store Business Credit
These types of business credit store cards usually have limits of 10 – 100 times that of consumer credit. They function the same as consumer cards, but they don’t report to the consumer reporting agencies. Rather, they report to the business bureaus, helping you establish business credit.
You can get approved with no personal guarantee in most cases. And with initial business credit established, you can get approved leaving your SSN off the application. This means you won’t be supplying a personal credit check for approval.
High Limit Credit Lines
Some conventional banks and private lenders also offer high-limit credit lines. You might see limits of $50,000 or more. These are the types of accounts most business owners truly want.
Credit lines and credit cards function almost the exact same way. One big difference is credit cards offer reward points and introductory rates of 0%. Credit lines typically don’t. However you can use credit lines to get cash advances at much lower rates than with credit cards.
Also credit lines are single accounts with a higher limit, whereas credit cards usually have lower limits, but you can get more cards. Having a higher limit and low rates for cash advance are the main benefits. Ywt this is more of a full documentation program, whereas other cards we’ve mentioned are more no doc (no documentation).
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