Funding Bay Blog

Unsecured vs Secured Loans: An introduction

Running a business is hard and one of the most difficult tasks to tackle is business finance. Money management is never easy and it becomes much harder when that money is attached to a strategic investment such as your business.

When cash flow is deficient you might consider taking a loan to help your business run smoothly. Loans vary in type and source depending on your business circumstance.

If you want to get to grips with the idea of loans, then the first thing that you need to learn about is the difference between unsecured and secured loans.

  • What are unsecured loans?

An unsecured loan is one of the most commonly used forms of loan. These loans offer a set sum of money that is offered by a lender. That lender will loan you the full amount and then it is down to you to pay it back each month.

The type of loan that you take out and which lender it is with will change your repayment terms, which is something that you will need to keep in mind.

As the loan is unsecured, you do not have to place any form of capital down. But these loans are seen as more of a risk, which means that the interest rate is likely to be higher; as is the lending criteria. This means that you are going to need to have a good credit rating in order to be able to secure the best deal on this type of loan.

  • What are secured loans?

A secured loan is, as the name suggests, is a loan that is secured to a particular asset within your business. This could be equipment, machinery, vehicles or perhaps property. When you take out a secured loan you are placing that particular thing down as a safety net. This means that should you not make the payments as and when you need to, then the lender can take away that asset.

A secured loan is seen as much a lower risk than an unsecured loan, which means that you will often get a better rate than that of an unsecured loan. You are also much more likely to be able to secure this type of loan if you have a bad credit history.

  • Which is right for you?

There are a couple factors that go into deciding on a secured vs. unsecured loan.  A secured loan is normally easier to get, as there’s less risk to the lender. If you have a poor credit history or you’re rebuilding credit, for example, lenders will be more likely to consider you for a secured loan than an unsecured loan.

A secured loan will tend to also have lower interest rates. That means a secured loan, if you can qualify for one, is usually a smarter money management decision than taking out an unsecured loan. Further to this, a secured loan will tend to offer higher borrowing limits, enabling you to gain access to more money.

Find out more about which loan is right for you and how to easily apply here at Funding Bay.

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