Unsecured Business Finance Vs. Secure Business Finance

Here is what you need to know about alternative business loan solutions.

Many potential borrowers and business owners have the same question: What is the difference between unsecured business finance and secured business finance? This is a very important question and it is important to understand the differences. Here is a simple way to look at these two financial options in order to assess which may be a better fit for your business.

Features of unsecured business financing:

  • Not secured by the borrower’s collateral.
  • Common types of unsecured loans include personal loans, student loans and credit card or revolving credit.
  • Approved based on credit rating and financial history.
  • Less risk for borrower as funding is not fixed to assets or property.
  • Increased risk for lender because there’s no collateral for lenders to claim if you default.
  • Unsecured loans are considered higher risk for lenders.
  • Capital may be used for various purposes.
  • Good credit is usually required.
  • Affordable repayments and generous terms fit to the business’s projected cash flow.
  • If the borrower defaults this will negatively affect credit scores and the lender may put the account into collections and/or take legal action.

Features of a secured business loan:

  • The lender is provided with collateral, protecting them from loss if the borrower defaults.
  • Some types of secured loans include mortgages, auto loans and home equity lines of credit.
  • Because the collateral acts as security for the loan, secured loans are considered lower risk for the lender.
  • More risk for borrower as funding is fixed to assets or property.
  • Larger sums at lower rates and better terms usually apply for secured financing.
  • Unsecured loans are considered higher risk for lenders.
  • A mediocre credit score may be sufficient with adequate collateral.
  • If the borrower defaults this will negatively impact credit score and the lender may take possession of the collateral.

Which Loan is Right For You?

Whether secured or unsecured business financing is right for your business depends on several factors, including how much capital you need to borrow and your credit score. Talk to one of our lending experts today to see what will work best for your business.