Small Business Loan: Is It Secured or Unsecured? So you started a small business. Congratulations! You’ve joined the record number of small businesses that were started during the pandemic.
By now you know there are many things to consider when starting a business, such as what type of business to register, how to finance your business, and what legal structures are available. One of the most important decisions you will make is whether to obtain a secured or unsecured business loan.
This guide will help you uncover the types of small business loans available so you can make the best decisions moving forward.
A secured loan is backed by assets, such as business equipment, inventory, accounts receivable, or real estate. If you default on the loan, the lender can take ownership of the assets that you put up as security. Secured business loans typically have lower interest rates than unsecured business loans because they are less risky for the lender.
Pros of a Secured Loan
Since the interest rates on secured business loans are typically lower than unsecured ones, it’s important for you to consider this when deciding which type of loan is best suited for your needs. Secured loans tend to come with longer repayment terms, are easier to access, and have lower repayment fees.
Cons of a Secured Loan
If you default on the loan, the lender can seize the collateral. If you placed something essential to the running of the business, this can have serious consequences.
Secured business loans also often have longer repayment terms than unsecured business loans. This means you’ll have longer to pay off the loan, but you may be stuck in a longer agreement than you prefer.
An unsecured loan is a loan that does not need the backing of collateral. Unsecured business loans are riskier for lenders, so they often have higher interest rates than secured business loans. They also often have shorter repayment terms than secured business loans, which can help you save on interest payments but means higher monthly payments.
Since unsecured business loans are not backed by collateral, you do not need to put up any collateral to obtain the loan. This is often an attractive feature to small business owners.
Which Type of Business Loan Is Right for You?
It depends on your business and your financial situation. If you have enough collateral to secure a small business loan, it may be a good idea to do so. Secured business loans have lower interest rates, which can save you money in the long run.
Unsecured business loans are more attractive if you do not have enough collateral or if you prefer not to use your business assets as collateral. You’ll get fast access to cash for your business ventures with shorter repayment terms but at higher interest rates.
Get a Small Business Loan Now
Ready to fund your small business idea? Talk to us at Key Capital. We’re here to help you secure the best financing for your business. We’ll guide you through the process and help you make the best decisions for your business.