When you’re looking for capital to take your business to the next level, it’s natural to consider a loan. But there are different types of packages depending on your business’s needs and situation. One of the main choices you’ll have to make is between secured and unsecured loans. Below, we explore the difference between the two.
What’s the Difference Between Secured and Unsecured Loans?
What is a secured business loan?
Essentially, a secured business loan is one which is backed up with an asset. If you can’t meet the repayment terms, the lender has the right to take control of one of your assets. As such, when you take out a secured business loan, a lender will have some of your business assets as collateral in the deal. For instance, one form of a secured business loan could be property finance, where you use the property that your business owns as collateral. This is why secured lending is often known as asset-backed lending.
What is an unsecured business loan?
An unsecured business loan has one key difference from a secured business loan: it’s not backed up by assets. This means that there’s no collateral with the loan. If you fail to meet your repayments, then the lender hasn’t many ways to try and regain their investment. As a result of this higher risk for the lender, you’ll find that the terms of the loan are more demanding, and you’ll get a worse financial package than if an asset was attached. As such, it has high interest rate and common to pay more interest with an unsecured business loan.
What type of lending is right for my business?
When you’re considering the right type of loan from the bank or other lenders, you’ll need to mainly consider the timeframe and cost. If you urgently need capital but don’t want to risk any of your assets, an unsecured business loan could be the right option for you.
However, if you need the capital over a longer timeframe and have real confidence in your business’s potential, a secured loan can give you a more competitive financial package. By planning carefully and incorporating this loan into your financial strategy, you should be ready for success.
Picking the right loan for your business can be daunting. But by following the guide above, you should be ready to begin your search for the right business loan for you.