What is a secured loan?
The most popular type of small business loan is a secured loan, or a loan that is backed by some sort of collateral. Collateral for the loan can be any asset of the business, such as property, invoices, savings, and inventory. As long as you own it and it has value, it may be accepted.
The reason secured loans are so common is that lenders prefer them as they reduce the lender’s risk. Should you not repay your loan, the lender simply takes the collateral asset, liquidates it, and makes their money back that way. The following are some benefits of secured loans as compared to unsecured loans:
Easier to obtain
Reduced lender risk
Lower interest rates
Higher loan amounts
Lower credit score requirements
What is an unsecured loan?
If your business does not have collateral to offer or does not wish to offer their assets as collateral, an unsecured loan is the better choice. Unsecured loans, understandably, are not a favorite of traditional banks and lenders as they are not guaranteed. That means that obtaining one of these is going to be a bit harder if you don’t have all of your business ducks in a row. Without offering any asset to back up your pitch, you have to sell yourself to a lender as a safe bet. All they have is what you personally bring to the table in terms of financial profile, business plan, credit score, etc. The following are some benefits of unsecured loans as compared to secured loans:
No collateral needed
Faster to process without collateral
Reduced borrower risk
which is right for my business?
Only you can know which is better for your business. Do your research, be honest about your financial outlook, and consider all options. If you want more information on commercial lending in general, please click here. Most importantly, though: make sure you take your time & get it right!
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