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If you’re a small business owner considering funding, then you no doubt have plenty of questions swirling around in your mind. How much money should you borrow? Are you eligible? And is a secured or unsecured business loan best suited to your needs?
Of all the questions, the last one is of particular importance, as it will dictate not only your eligibility but also the terms of your business finance. In this article, we’ll be looking at secured vs unsecured loans and which option will benefit you the most.
What Are Secured Loans?
Typically, secured loans are offered by traditional lenders, such as banks. They refer to a business loan that is ‘”secured’” by a form of collateral, such as real estate, motor vehicles, business equipment, or any other high-value asset you own. Collateral is something that belongs to you that you pledge to support the repayment of your loan, in the event that you cannot meet your repayments.
Lenders sometimes ask for a business loan to be secured in this way as it reduces the risk on their behalf. Even if the loan is not repaid, the lender still acquires something of a high value and therefore, doesn’t lose all of the money they had provided.
For some secured business loans, this collateral might take the form of a personal guarantee instead. This is simply a written pledge that promises the loan will be repaid by another individual guarantor in the case that the borrower defaults on the loan.
Generally, having to provide collateral such as a high-value asset or personal guarantee is seen as risky, as it can have serious implications if you cannot meet your repayments due to unforeseen circumstances.
Secured loans can provide numerous benefits to small business owners, however, particularly as this form of security allows the loan to be offered at lower interest rates across longer terms (usually up to 30 years). Additionally, loan amounts may be larger, often ranging from $250,000 to $50,000,000.
Keep in mind that obtaining business finance through traditional lenders can equate to much longer application approval periods. Be prepared, on average, to have to wait 3-4 weeks just to receive an outcome.
What Businesses Should Consider a Secured Loan?
Secured business loans may be best suited to businesses:
- Which are well-established and have been in operation for 2 years or more
- Requiring a large amount of funding
- With a strong credit score
- With high-value assets they don’t mind pledging as collateral
What Are Unsecured Business Loans?
As their name suggests, an unsecured business loan is one that doesn’t require the security of collateral. Therefore, the lender cannot seek repayment by going after your valuable assets, such as your home.
Instead, these types of business loans are offered by alternative lenders with less stringent eligibility requirements. Generally, the lender’s decision will depend on your business sales, not your personal credit, while requirements may be as minimal as having at least 6 months in business and a minimum of $10,000 in monthly sales.
Because of this, unsecured loans carry some risk for the lender and therefore, are usually offered for smaller loan amounts ($10,000 – $250,000), across shorter repayment periods (3 – 12 months), at higher interest rates.
A big advantage of unsecured vs secured business loans, however, is their fast approval rate – often within as little as 24 hours. Additionally, the approved funds may be wired directly to your bank account within 1-2 days, making unsecured business loans both faster and more efficient than their secured counterparts.
Unsecured business loans are known to be flexible funding solutions for businesses of all types and sizes. This is because they offer greater control to choose the loan amount you require for the time you need it, but some lenders also allow you to repay the loan early without penalties.
What Businesses Should Consider an Unsecured Loan?
Unsecured business loans may be best suited to businesses that:
- Require funds quickly and seek fast application and approval times
- Have been in operation for less than 2 years (but more than 6 months)
- Have a fair or poor credit rating
- Don’t possess valuable assets, or are unwilling to risk their seizure
- Are willing to pay slightly higher interest rates to secure the cash injection they need
If any of these scenarios describe your business, then you too may benefit from an unsecured business loan from Zinch.
Contact us at (714) 500-6622 to learn more about your options. You could qualify for up to $250,000 in just 24 hours.
