Running a business is difficult, however it’s crucial for a business owner to understand what business finance is available and which one is appropriate for their business. Moreover, knowing the distinction between Unsecured and Secured loans and what they each offer is very extremely crucial because it has its pros and cons. Before we mention pros and cons, let’s firstly perceive what each of the business loans mean.

Unsecured Loan

Unsecured business loan is a common type of loan and it’s the fastest way to inject your business with capital. Unsecured loan allows you to get a flow of cash without risking your assets or property as it’s not backed by any form of security.

Furthermore, repaying the loan is very straightforward. Depending on how much loan you secure from the lenders, you’ll be paying the loans over monthly basis.

Pros of Unsecured Loan

  • You can get the money faster for your business compared to other types of loans
  • You will be paying a low upfront cost
  • You are risking less with Unsecured loans as you’ll not have to put up any of your assets as a form of security.
  • Easier repayments options

Cons of Unsecured Loan

  • With Unsecured loan you’ll presumably be offered small amount of capital as lenders have to take more risks
  • The interest rate for repayment will be higher
  • This is more suitable for businesses with good credit scores as they’re going to get the more favourable deal.
  • You will not be able to lower your payment instalments but if you decide to disburse your loan sooner, you may have to pay a fee.

Secured Loan

Secured business loan is backed by security, which suggests you’ll use asset(s) or property as a security against the money you borrow. Therefore, the asset can be in the form of an automobile, property, or apparatus. Secured loan allows you to borrow a large volume of capital which facilitates your business for better equipment’s, projects, or opportunities.

Pros of Secured Loan

  • You can borrow more money because you are putting up an asset as a security for your loan. Depending on the valuation of the assets you’ll be able to borrow the majority of the money that your assets is valued as.
  • You don’t need a good credit rating to get a secured business loan unlike unsecured business loans.
  • The biggest gain of using a secured loan is your interest rate will be lower. Therefore, it’ll minimize the risk of losing money for the lenders and will offer better interest rates.

Cons of Secured Loan

  • Secured loan is a high risk as you’re putting up an asset(s) as a security. Consequently, if you fail to repay your secured loan, the lenders can take away your asset(s) to compensate for the value of the loan.
  • It takes longer to obtain the money, compared to an unsecured loan, because with a secured loan there’s a legal process that has got to be done before receiving the funds.
  • If you’re repaying your secured loan over an extended period of your time, then consequently you’ll end up paying more interest overall as a result.
  • Higher upfront costs – the inclusion of legal and valuations comes at a cost which is typically born by the borrower upfront.

So which business loan is right for you?

There are a few factors which you want to be cautious of while figuring out which business loan is right for your business. With an unsecured loan you’re able to get money into your business faster than a secured loan, however the amount of money you get will be less than you would get from a secured loan option. If you’re seeking out a safer alternative where there is minimal risk to your business, then unsecured loan options is the one for you. Although a secured loan gives you more capital and has a low interest rate, you will be putting your asset(s) as a security which is a massive risk if you fail to repay the loan.

You should now have a clear understanding of what Unsecured and Secured loans are and which one is right for your business. If you’re still unclear and would like to learn more about secured or unsecured loan, get in touch today and one of our advisors will get in touch to discuss your needs.