Secured v Unsecured Business Loans – The Key Differences

secured or unsecured loan what's the difference

If you need finance for your business, one route you can take is a business loan. Business loans now come in a wide variety of shapes and sizes, so you’ll need to choose the loan that’s best suited to your situation.

One of the main options you’ll have is whether to take out a secured, or unsecured business loan, so let’s look at what this means.

The term ‘business loan’ is fairly broad. It pretty much encompasses any product that involves borrowing an amount of money, to be repaid over a period of time, via regular monthly repayments with interest added.

While there are a lot of different factors you can look at to help narrow down your search, most business loans are either secured, or unsecured, so this is a pretty good place to start.

What do we mean by a ‘secured’ loan?

A secured loan requires tangible assets to be put up as security, which can be taken by the lender should you default on the loan.

This form of secured lending is usually determined by the value and quality of the assets you can put forward, so the greater the value of the asset, the more you will likely be able to borrow.

Accepted assets generally include commercial property, vehicles, plant or machinery.

Who can get a secured loan?

Most businesses with decent tangible assets to offer as security stand a good chance of successfully applying for a secured loan.

It’s worth taking stock of your assets as a starting point so you can appraise what you have and the current value to see how much you could leverage from them.

What do we mean by an ‘unsecured’ loan?

A loan is unsecured when a lender loans you the money without taking any assets as security.

That being said, while there might not be the need to put forward an asset from your business, a finance provider may ask for some form of personal guarantee from you as an individual.

Who can get an unsecured business loan?

Because unsecured loans are not backed up by assets, they are perceived to be higher risk for the lender.

Instead, they will want to see a business with strong profits and a decent trading history. This means they are usually only available to established businesses with a proven track record.

Key features of secured loans:

  • Require assets to be put forward as security
  • Amount you can borrow will depend on value of assets
  • Generally cheaper due to minimised risk for lender
  • Involves legal and valuation costs to be paid upfront
  • Can take more time to get the funds

Key features of unsecured loans

  • No assets required
  • Typically dependent upon the strength of your business
  • May not be an option for new businesses
  • Generally more expensive with higher interest rates
  • Tend to be for smaller amounts, repaid over a shorter period of time
  • Quicker and cheaper to access, with fewer, if any, upfront costs

Another form of Alternative Finance?

Whether you might try for a secured or unsecured loan depends on a number of factors and determining which option suits your business at that moment.

It’s also worth bearing in mind that business loans are one of many different forms of finance that are now available to small businesses. It might be that something like Asset Finance, Invoice Finance or a Merchant Cash Advance would be more suited to your needs.

Either way, it’s worth taking the time to research what’s available and find the right funding for your business.

Find Your Funding Fast

Our Funding Partner, Funding Options, can help you to quickly find the finance you are looking for.

Their award-winning technology searches the market to find the right funding for your situation and gives you a no-obligation quote in just a few minutes.

What’s more, their experienced team is always on hand to help you with any questions. Find out more at the Funding Options website.

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