The Difference Between an Unsecured Business Line of Credit and Collateral

business line of credit

A MCA unsecured business line of credit means that you risk less than if you were to use other secured lines. This can be a nightmare to a business owner with lots of expensive equipment. There are other ways of obtaining funding without attachment of assets. We’ll get into that but first, let’s quickly go over what a secured loan is in it’s simplest terms and what an unsecured loan is in its simplest terms.

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MCA Unsecured Business Line Of Credit VS. Secured Line of Credit

Basically, this is credit that is given to you and you pay it back with a certain amount of interest. The interest is relative to each business line of credit requirements and many factors are considered; which factors depends on the company that’s chosen. The easiest way to explain this is using a credit card. The credit cards are given at the predetermined interest rate and are paid back at a certain time each month. If payment is late or defaulted, then interest and fines are added and sometimes collections are needed. When the person or business applied for the card, they did not have to make any kind of deposit as collateral to pay the card should there be a default. This is done with secured loan options. There is a sort of insurance deposit just in case of that default they have an amount that matches the amount of credit granted or more. The secured loan works in much the same way. There can be a deposit or collateral either business or personal is sought for the purpose of repayment.

Read More: Choosing Wisely: Secured Business Loans or Merchant Cash Advance?

Why is an Unsecured Business line of Credit better than a Secured One?

The example we will use is a MCA loan which is a merchant cash advance as an unsecured business line of credit. This is the best type of loan that sometimes uses collateral but only typically as a last-ditch solution, making this unsecured loan sought after by many companies. What you will do is fill out a quick and easy one-page form online. You have to be in business somewhere between 6 months and a year. You must be able to provide 3 to 6 months of credit card sales that total $10,000 per month. In this case, a credit score really is not considered. This is because the main factor for a MCA is the credit card sales. As we explained earlier, they want you to make a profit while still making constant repayment. This is why the number is as it is; it helps the business and the lender. So you can see where this is not a bad deal at all. When you put up collateral it means you are allowing possessions to be secured. This can be a very stressful experience but it’s sometimes necessary.

The MCA companies do their utmost to ensure the success of their customers. Unlike banking loans, there are no long and drawn out processes with cold interactions. The bottom line is if the business owner succeeds then so does the lender.

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