The Main Differences Between Secured and Unsecured Business Loans

Starting your own business? Certainly, by now you know that the process is rather challenging and financing definitely makes it all the more so.

If you are considering a loan to cover the financial needs of your business, then you need to know whether a secured or unsecured loan is right for you. Knowing how they differ is paramount, especially when deciding which one best caters to your needs.

Before applying for a business loan, you should first know the main differences between secured and unsecured business loans. Here is your guide.

Important Details

As a business owner, there are two types of loans you should know about, these are secured and unsecured loans. For secured loans, the risk is placed on you the borrower, whereas for unsecured loans the risk is placed on the lender.

The type of loans available to you is dependent on elements such as credit history, your assets, the lender and your plans for the loan. To get you further educated on these, take a look at the differences between them.

Secured Business Loans

These are the most popular loans because they usually require an asset, business or personal. If you don’t make your payments then the bank will take ownership of the asset used. This is a disadvantage to consider.

Some assets that can be used as collateral include inventory, equipment, and real estate. If you want to reduce the level of risk on your investment, get a lower interest rate with a larger timeframe to repay. With these advantages taken into consideration, you may find that this is the loan for you.

Unsecured Business Loans

For these types of loans, you don’t have to provide an asset as collateral to qualify for them. If you have a good credit history, then you should consider this as a financing option.

An advantage is that if you can’t make your payments, your assets will not be seized. The downside is that since no assets are needed your credit score has to be impeccable and you are likely to get a higher interest rate. The bank may even take a percentage of your credit card transactions.

Additionally, you have a shorter time to repay and may face a lawsuit from the bank if you default on the loan.

The Differences and You

If you’re just starting your business a secured business loan might be all you qualify for. On the other hand, established businesses might be better suited for unsecured business loans. Entrepreneurs can also look into partially secured loans.

A Final Look

As a business owner or an entrepreneur, especially a new one, your finances will be integral to the success of your company. Nothing is wrong if you need to borrow a business loan. However, ensure that you know the difference between secured and unsecured business loans.

Knowing the differences can help you to decide which one is best suited for your business. If you would like financing for your business, please reach out to us.