Differences between secured and unsecured loans

What is the main differences between a secured and an unsecured loan? While a lot business owners try to preach a cash only lifestyle, the truth is most rely on credit to pay for their business's big expenses over time. Whenever you want to buy a big ticket item such as a building or heavy equipment, or even hire employees, you can apply for a loan at Click-N-Loans.com to help you cover the cost.

When considering your loan options, you will have to decide between a secured and unsecured loan. Secured loans always require that you offer up something as collateral, just in case you can’t pay back the loan amount, whereas unsecured loans allow your business to borrow the money outright with no personal collateral involved.

There are definitely pros and cons to both types loans, so before you decide anything it’s best to understand the all the strings attached to each of them.

What is a secured business loan?

A secured loan is simply a loan backed by your personal collateral. The most common secured loans are mortgages and cars. In the case of these loans, the collateral is your home or car or something of similar value. But realistically, the collateral can be any kind of financial asset you possess. If you don’t pay back your loan, the bank will seize your collateral as the payment. A default and repossession stays on your credit history for up to 7 years.

When your business takes out a secured loan, the lender will put a lien on the asset you present as collateral. Once the secured business loan is paid off, the lender will then remove the lien, and return the asset.

Here are the some examples of assets you can use as collateral:

  • Real estate, property
  • Bank accounts, financial assets
  • Vehicles
  • Stocks, mutual funds or bond investments
  • Life insurance policies
  • Collectibles and other valuables

Since your assets can be seized by lenders if you don’t pay off your secured loan, they are technically riskier than unsecured loans on top of harder to qualify for. 

What is an unsecured business loan?

An unsecured business loan requires no collateral. Since there is no collateral, lenders will give out unsecured loans based largely on your business's current monthly revenue and your credit history. For this reason, unsecured loans may have higher interest rates (but not always) than a secured loan, but tend to be less risky.

Unsecured business loans are already growing in popularity due to the quick delivery and high acceptance rate. Your business can take out a loan for nearly any purpose, whether that’s expansion, payroll, inventory, to pay bills, or hiring, etc.

Most businesses get loans for debt consolidation, and since the business loans tend to have lower APR than business credit cards, merchants can save money on interest.

Things to know before your business takes out a loan

Before you decide what loan to take out for your business, whether it’s secured or unsecured, make sure you have a clear payoff plan.

As a rule of thumb, only borrow what you know your business needs and can afford to pay back. Contact Click-N-Loans.com to see which loan your business qualifies for!