What is the Difference Between a Secured & Unsecured Business Loan?
There are many times where a business might require a loan, including starting the business, for growth or to manage during a challenging period. A loan can be a great way for a business to quickly receive a large amount of money, but it is important to be aware of the difference between a secured and unsecured business loan and to find the right option for your company and needs.
Secured Business Loan
A secured business loan is one where the company will be required to back up the loan by security, which is usually a valuable asset or items that the business owns. This could include commercial property, vehicles, machinery or inventory. The benefits of a secured business loan are that they are usually cheaper because there is less risk to the lender, but of course, it does mean that you are putting valuable assets up as collateral.
Unsecured Business Loan
As you might expect, an unsecured business loan is simply one that is not backed up by an asset and instead by the company’s trading position. This means that your business will need to be in a strong position in order to get approved for an unsecured loan and they are usually for smaller amounts and with a shorter repayment window. Unsecured loans are usually more expensive but they can be quicker and easier to arrange with less risk.
Determining the Best Option
In terms of identifying what the best option is for your business, you will need to consider the timeframe and the cost. If you want quick access to the money, you are willing to pay more and you have a good track record then an unsecured loan could be your best option. If you are looking for a larger loan and you have assets that you can put up as collateral then you might want to look into a secured loan.
As with any type of loan, you should always work out exactly how much you need to borrow and work out what you are able to afford in terms of repayments. It is also important to go to a specialist for a secured business loan or an unsecured loan and to work with them to come up with the best option for your business.
Business loans can serve many purposes and are often essential for a company to succeed, but it is also a major decision to make and not one that should be made lightly so you need to work out what the best option is for your company and needs.