If you’re considering a business loan that suits your needs, you might be a little confused about all of the options available to you. For the sake of simplicity, we will be focusing on the two main types of loans that businesses apply for these days – secured and unsecured loans.
These types of loans offer their own benefits, but many people wonder if unsecured loans are a safe option for them. We will look at the difference between these two types of loans, as well as look at how an unsecured loan might be perfectly suited to you. This should answer the question of whether or not an unsecured loan is a safe option for your business.
What Is the Difference Between A Secured And An Unsecured Loan?
The modern landscape of traditional banking has shifted dramatically since the 2008 financial crisis, which has made it harder for businesses to successfully apply for small business loans. This led to a shortage of loans available for small businesses and was remedied by non-bank lending companies.
Generally speaking, banks will use collateral to offset the risk of a loan, so in order to receive funding, people would be required to offer their assets – cars, and houses usually – as compensation if loan repayments are not made. This is known as a secured loan.
Non-bank lenders, on the other hand, do not require such collateral. Instead, an unsecured loan is offered which replaces collateral with a higher loan repayment interest rate. This is the key difference between the two types of loans and their lenders.
The Advantages Of Choosing An Unsecured Business Loan
Of course, the biggest advantage of an unsecured loan is the lack of any collateral which opens up the market to many more potential borrowers. Moreover, unsecured loans tend to have a lower bar for approval, which lets even more people borrow. Non-bank lenders will not penalize you for a poor credit score or a lack of collateral.
Another big benefit of an unsecured business loan is the speed and flexibility of the transaction. A loan from a bank can take weeks or even months to successfully make its way to your account. Unsecured loans normally take a few days to reach you once you have been successful in your application. There are also no stipulations regarding how you spend your loan if it is unsecured, whereas banks ask borrowers to use the money for specific purposes.
The last major advantage of an unsecured business loan is the substantial price cap that is offered – you can ask to borrow as much as you need. Banks are much more scrupulous when it comes to loan amounts, which can hamper their use for many potential borrowers.
Unsecured Business Loans – Are They Safe?
Depending on your circumstances, an unsecured business loan is not only a safe option but your preferred one. If you don’t like the idea of collateral or require funds quickly, a regular bank loan simply won’t cut it. For a truly flexible loan that meets your needs, an unsecured loan is a safe and smart way to invest in your business.