Whether you’re taking out a loan to purchase inventory, invest in advertising and marketing or just for working capital, there are a plethora of different loans available from bank and non-bank lenders. However, the two most common types of loans are secured and unsecured.
To help you navigate your business loan process, we’ve put together this quick guide to help you figure out the difference between secured and unsecured loans, and to determine which one is right for your business:
Difference Between Secured and Unsecured Loans
The main difference between secured and unsecured loans is that the former requires you to put up assets (either personal or business) as collateral attached to the loan. These assets are usually property but can be anything from vehicles to business equipment; you can even borrow against the value of your business in some cases.
Secured loans are typically offered by banks and allow businesses to access more funds. This is because the lenders are taking less of a risk when a business puts up assets, as the lender can recoup their losses by seizing the assets should the loan fail to be repaid. Alternatively, unsecured loans tend to be for smaller amounts and have higher rates due to the higher risk (however you don’t have to put up your house). At Moula, we use your business’ online accounting data, instead of securing collateral, to ensure our rates are as low as possible.
Which Is Best For My Business: Secured or Unsecured Loans
A secured loan would be a good option for:
- A business looking to borrow a large amount of funds
- A larger business that is established
- Have several assets that could be put up as collateral
- Able to make repayments over a longer period of time.
Secured loans are usually offered by banks, to larger businesses, for larger amounts of money. However some alternative lenders do offer short-term secured finance options.
An unsecured loan would be a good option for:
- A small to medium sized business
- A relatively new business with few or no assets
- Looking for a quick injection of cash
- Able to make repayments over a short period of time, anywhere from 3 to 12 months.
Alternative lenders, like Moula, offering unsecured loans will usually assess business data in lieu of collateral to assess risk. At Moula we analyze online business accounting data to keep our rates as low as possible, so you don’t have to put up your own assets just to get a business loan.
Unsecured business loans from non-bank lenders are typically quicker as well. While you can get more funds from a bank lender, alternative lenders have a much quicker turnover. In some cases Moula can approve a loan and have funds in your account in less than 24 hours!
Also check out Frequently Asked Questions on How to Get a Business Loan.