Worryingly, many people don’t understand the difference between a secured and unsecured loan – yet they have very diverse terms and circumstances. The options are endless when it comes to lending, but it’s essential you know all the facts when shopping around.
Business loans are becoming particularly hard to acquire from banks and financial institutions, and even if you are accepted the payment terms and interest could be ridiculously expensive. With this in mind, there are lots of reasons to explore the options available but you need to sift through the jargon. Read on to understand the major differences between secured and unsecured business loans, and which would be more appropriate for your situation.
Unsecured Business Loans
What is an unsecured loan? It refers to a loan which is offered without any backing or assets to be recovered. You can borrow money without having to give security on any assets or your home, and is available to anyone with a good enough credit score.
The amount you can borrow will depend on the lender and the personal circumstances of the business wishing to borrow – however it is usually up to the amount of £500,000. An unsecured loan often has a short term but you can receive the cash in under a day. It is worth noting that you may need to make a personal guarantee with this type of loan – so if the business cannot make the repayments you will have to.
Secured Business Loans
A secured loan is a loan which is backed by an asset – usually the equity in a property owned by the borrower. This means that typically only homeowners can take out this type of loan, unless you have large business assets which can be used as security.
You will be able to borrow a lot more money by choosing a secured business loan, however it comes with risk. If you can’t pay back the loan in full, you would have to sell your business assets to repay the debt, or you could even lose your home if you miss the payments.
Which is best for me?
You may not have a choice in which type of business loan you are eligible for – however if you do, your personal circumstances will determine which option is best.
If you are willing to put up your business assets as collateral, then you will be able to borrow more with a secured loan. An advantage of secured loans is that the repayment terms are usually longer, so your monthly payments could be minimal.
However, an unsecured loan is an easy, affordable and fast way to get the cash you need. Find the right lender, and you might not need a perfect credit history. Furthermore, you could be offered flexible repayment terms and won’t be charged for repaying early.
If you need further information about our range of loans, get in touch with our lending experts.