If it is your first time applying for business loans, it is essential to have all the facts in line about the different types of financing options. Let’s start with the basics! You can divide business financing into two categories; secured and unsecured business loans. In this blog, we will walk you through the differentiating points between the two, so you can approach a lender or finance broker, full-equipped with knowledge.
The terms secured business loan is self-explanatory! It’s the kind of business loan secured against collateral or security, mostly real estate, by a borrower. It is common for new businesses to apply for secured loans either for starting a venture or expanding the business. Start-ups with cash flow issues also apply for secured business loans. To apply, you need to have:
The most common types of secured loans are start-up business loans, property loans, and equipment finance.
A loan that is not secured against any collateral or security is an unsecured business loan. The lender approves the loan after assessing the cash flow and credit score of the business and its owner, respectively. Unsecured business loans are preferred by small businesses, often suffering from a cash crunch, when running operations. The eligibility criteria are similar to secured business loans, apart from the collateral specifications.
Features:
The common unsecured loans are unsecured small business loans, invoice finance, and unsecured business lines of credit.
Now, let’s do a quick run-through of the differences between the two.
| SECURED BUSINESS LOANS | UNSECURED BUSINESS LOANS |
1. You need to secure the loan with collateral. 2. There is no cap amount. The lender will agree on a loan amount based on the value of the security or collateral. 3. Loan term can go up to 25 years. 4. It poses risk for the borrower. If he/she is unable to the repay the loan, the lender takes possession of the asset. 5. Takes slightly longer to get approval. | 1. No need for collateral to get the loan amount. 2. There is a cap limit since the loan is not secured by collateral. 3. Loan term is usually shorter between 3-36 months. 4. Since this is unsecured, the loan poses more risk for the lenders. 5. Fast approval possible within 24-48 hours. |
Hopefully, we helped you understand the differences between secured and unsecured business loans and the loan categories. If you are applying for a secured or unsecured loan, you can reach out to a private lender or a finance broker, like Broc Finance. The latter can save you the hassle of connecting with multiple lenders and presenting your application for approval. Finance brokers have a network of private lenders and finance companies via which they can secure your desired funding at favourable terms and interest rates.
Saroj is the Head of Lending at Broc Finance. He comes with 13+ years of experience in small business lending and has a knack of structuring complex deals and get the best outcome for his customers.
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