It’s comparatively rare these days for any business to get up and running without at least some kind of financial support. In most instances, said support is procured in the form of one or more business loans. But when the time comes to seek financial backing in the form of a business loan, entrepreneurs must decide between secured and unsecured options.
The question being – what’s the difference between the two?
What Is a Secured Loan?
In the simplest of terms, secured loans are loans that are provided on the basis of the borrower offering some kind of collateral to the value of the loan. In most instances, these loans are secured on property and business assets. For example, if you own a property with the value of £250,000, it’s unlikely you will have any trouble qualifying for a secured loan of £200,000.
Just as long as you are 100% confident that the loan will be repaid in accordance with the agreed terms and conditions, a secured loan can offer superb versatility and value for money. For one thing, the fact that you are securing the loan with property or business assets generally means that additional qualification criteria are minimal. Credit reports, business performance and personal status for example are usually of no significance. What’s more, the money can be paid out much quicker, repayment terms can be more flexible and interest rates tend to be comparatively low.
The only downside being that in the case of a secured loan, inability (or unwillingness) to meet the agreed repayment terms could result in the collateral being lost.
What Is an Unsecured Loan?
Unsecured loans are essentially all other types of financial services where money is lent without collateral being put on the line. All standard personal loans and most business loans are provided as unsecured loans, where no security/assets are required. Which in turn means that the most immediate benefit of an unsecured loan is the way in which your property or assets will not be taken away, should you run into financial difficulties and find yourself unable to pay back the loan.
These types of loans are typically offered in somewhat smaller sums, though can be used for just about any purpose imaginable. Interest rates can be competitive, though rarely go quite as low as those attached to secured loans. Exactly how long it takes for the required cash to be provided varies significantly from one provider to the next.
In terms of downsides, unsecured loans are more difficult to qualify for. The reason being is that the lender needs to take into account various criteria, in order to reach a judgment as to whether or not the applicant represents a viable candidate for borrowing. From credit reports to employment status and various other considerations, you need to fully demonstrate the position you are in, before you are likely to be considered. – https://www.bridgingloans.co.uk