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Business lines of credit may be classified into two major categories: secured and unsecured. A secured line of credit requires the borrower to put up as collateral a property or an asset. An unsecured line of credit, on the other hand, does not have such requirements. Most banks and lending companies prefer giving secured business lines of credit because there is less risk on their part. If a borrower fails to pay back a loan in time, the lender won’t suffer any loss because it will gain ownership of the property or asset that was put up as collateral.

From the point of view of a business owner, however, an unsecured business line of credit is considerably more appealing. Imagine this: you can acquire the funds you need for your business without having to put any of your existing investments or properties at risk. The requirements when applying for an unsecured business line of credit may vary depending on the lending company. To apply for an unsecured business line of credit, you will have to do the following:

1. Have an established business. Simply put, you can’t qualify for an unsecured business line of credit if you’ve just put up your business or if your business is still in the planning stage. Your business needs to be at least two years old for most lenders to consider your credit application.

2. Submit your contact details. Although many businesses today are found online, websites and email addresses are still not considered valid contact information. You should submit a real address, a phone number, and a fax number.

3. Prepare legal documentation. Lending companies will want to verify whether your business is legitimate and duly registered with the proper government agencies. Gather all documents pertaining to your business. These include business permits, licenses, taxes, contracts, and financial statements. Be ready to present these to the lender.

4. Build a credit profile for your business. No lending company will grant you an unsecured business line of credit if you do not have a proper credit profile. An agency like Dun & Bradstreet (dnb.com) can help you create a credit profile.

5. Improve your Paydex score. Dun & Bradstreet developed the Paydex. It’s the numerical score given to businesses that tells creditors their promptness in paying back loans to creditors and suppliers. Think of it as the FICO score for businesses; your Paydex score measures your creditworthiness as a business owner. The Paydex score range is 0 to 100. The higher your Paydex score, the better your chances of getting approved for an unsecured line of credit. A Paydex score of at least 75 is considered healthy.

6. Prepare a written proposal. In this proposal, state the reasons you need an unsecured line of credit, the amount of money you want to borrow, and how you plan to put the money to use.

Since the decision to grant an unsecured business line of credit lies in the lending company, there’s no telling whether your application will be approved or not. At the end of the day, it all boils down on how trustworthy you seem to be in the eyes of the lending company. Remember that lenders don’t have any security in case you fail to make payments, so you can’t blame them if they choose to reject your application. The only thing you can do is to keep submitting your applications to different companies and hope for the best.

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It’s no secret that it’s tough to get a loan in this economy. For a small business with absolutely no prior credit experience, it’s even more difficult; even if your business has a multi-year track record of consistent income, you’ll find it challenging to persuade bankers to give you the capital you need to expand.

However, you shouldn’t give up before you’ve even begun. Although fewer loans are being granted these days, banks and other institutions – notably, government agencies tasked with fostering economic development – still have some money to lend. There’s no reason you can’t win some of it, assuming you do your homework. Here’s a list of steps you can take to get that loan:

1. Develop a detailed, specific business plan that describes what you plan to do with the money and how long it will take to accomplish your goals. Potential lenders will ask you for your business plan immediately, but it’s astonishing how many business owners don’t have a detailed document to show them – or worse yet, don’t have a business plan at all. You can’t accomplish your goals if you haven’t thought them through, nor should you expect someone else to back those goals if they can’t easily read them.

2. Determine exactly how much money you need to accomplish your goals, and then add at least 20 percent. You may think it’s easier to borrow a smaller amount than a larger amount, but that’s not always true – and borrowing more now will be easier than trying to get another loan if you’ve run out of money too soon. Don’t low-ball your loan, either; allow yourself a comfortable cushion to get your project on track and profitable.

3. Spend some time talking to fellow business contacts at your local Chamber of Commerce. If your area doesn’t have an active chamber (or if the group is particularly small), attend a regional or state-level meeting. Many of these people have been in the same situation you’re in now, and some may have suggestions about banks or agencies you can approach that are familiar with your particular industry. In addition, they’ll be able to describe the loan process to you, which will help you get better prepared.

4. Research small business loans backed by the Small Business Administration or by an agency in your state. Although some federally-backed small business loan programs expired in September 2011, you may find one that suits your needs. The SBA has regional offices in every state, and the agency’s personnel are there to help you. In addition, most states have economic development authorities, and some of those back small business loans.

5. Consider approaching a smaller bank first – especially one that’s based nearby. Smaller banks frequently have a less-intimidating loan process that benefits from more of a “personal touch.” In addition, those banks often have a stated business policy of helping the local economy. If you plan to use your small business loan to hire extra workers locally or to provide other economic benefits, say so – it’s more likely to have an effect at a local bank. Also, it goes without saying that you’ll need to present a professional, business-like persona during your loan interview, so dig your best suit out of your closet, even if your workday outfits consist of jeans and t-shirts.

6. Don’t give up, even if the first two or three banks you approach say no. Ask the loan officers for an explanation – they may give you an opening to resubmit your application, or possibly supply you with some information that can help you at the next bank. If your rejections are piling up, consider talking about your situation with your regional SBA or state small business office to see if there’s a better way to approach your specific set of circumstances. You may simply need to polish your business plan, or you may need to revise your entire project and timeline – but there’s no way to know without asking.

7. If all else fails – and this is a tough economy in which to get a loan, especially if your business has never applied for credit before – consider drawing on your own resources to secure a loan. If your home has any equity left, you may be able to tap into that. As a last resort, you can open a personal line of credit. However, the interest rates on unsecured loans tend to be near-extortionate, and could tax your growing business too severely.

Overall, you shouldn’t assume that just because the economy is bad, you won’t be able to get a small business loan … even if your small business has no previous borrowing experience. However, the bad economy does mean that it’s much more important to develop your plans thoroughly before approaching potential lenders, and to use all your contacts, plus make some new ones, in search of a loan program that will work for you.

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Starting up a new business typically means looking for a loan as a means of reliable funding. Can your start up business qualify for a subsidized or a privatized loan?

Starting up a small business involves a great many tasks including locating reliable financing to fund your business start up. Most start up businesses have two options when it comes to obtaining reliable financing- a privatized or a subsidized loan. The loan should provide sufficient financial backing that will carry the business owner over the first two years of the business.

Applicants with the best credit ratings are generally in the best position to obtain a privatized loan. However, if an individual can meet the requirements for obtaining a subsidized loan, he should start in that direction first.

Small Business Loans: Qualifying

Part of the application process involves the presentation of a clear business plan. The more detail that the applicant can provide, the better his chances are of securing a business loan. The business plan should include a comprehensive prospectus that covers a timeframe between the first two and five years. The following items should be included: estimated start up costs, projected number of employees, anticipated revenue, targeted market, current resources, and product inventory.

Small Business Loans: Subsidized

The Small Business Administration or SBA offers a number of subsidized business loans to those endeavors that meet the qualifications. The SBA offers this type of business loan in an effort to encourage the start up of specific types of businesses or to encourage particular businesses to start up in specific geographic locations. Only applicants who meet one or the other of these two qualifications can take advantage of subsidized loans.

A subsidized small business loan sometimes carries a lower interest rate than privatized loans, providing a lower overall cost to the business that manages to obtain one. Another reason that a subsidized small business loan is less expensive is that some of the associated costs of obtaining a loan are picked up or subsidized by the government.

Small Business Loans: Privatized

Privatized business loans originate from mainstream lenders such as credit unions, local banks, and large bank conglomerations. Any application for a small business loan for a start up business is going to undergo thorough scrutiny. Even small business loan applications from established businesses are going to receive a complete examination of the pros and cons associated with loaning money to that particular business.

In both cases, the business applicant should provide a well-defined plan for the next two years of business. This plan provides the lender with a firm indication of the potential for success that such an endeavor might expect. Applications that do not include this type of document have a smaller potential for approvals.

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