Secured vs unsecured business loans
Not sure if a secured or unsecured loan is more suited to your business needs? Find out in this guide.
If you've decided to apply for financing for your business, finding the right type of loan is an important next step. There is a range of loans available from banks and online lenders, but two of the most common business loan types are secured and unsecured loans. In this guide these two loans will be compared to help you decide on the best loan for your business.
What is the difference between secured and unsecured business loans?
The key difference between secured and unsecured business loans is the guarantee that is required – secured business loans require you to have assets, whether they be business or personal, to attach to the loan, while unsecured business loans do not.
Secured business loans are typically offered by banks and can help a business access larger amounts. This is because lenders are taking on less of a risk if they know they can recoup their losses should the loan not be repaid. Unsecured business loans tend to come with lower loan amounts and higher rates as the loan is more of a risk.
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What is considered a valuable asset?
When you're borrowing against your assets, your loan is secured by the residual value that your assets represent. If you're unable to repay the loan, the lender may seize your assets to cover the outstanding amount. Any of the following can be used as security:
- Personal or commercial property
- Valuable art
- Business equipment
- Appliances and valuable musical instruments
You can also borrow against the value of your business.
Is an unsecured or secured loan best for my business?
- You're looking to borrow a large amount of money
- Your business is established and successful
- You have several assets you can secure the loan against
- You are in a position to make repayments over a long period of time
Secured business loans are usually granted by banks, but some alternative lenders also offer short-term secured loan options.
Your business can consider an unsecured business loan if:
- You have a small- to medium-sized business with few or no valuable assets
- Your business is relatively new in the industry
- You need a quick cash injection
- You can repay the loan over a period of three months to five years
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