There are two basic groups that business loan types fall into – Secured Business Loans and Unsecured Business Loans.
Secured Business Loan
Secured business loans are those loans that are safeguarded by an asset or security of some sort.
A home or a motor vehicle, even some equipment can be used as security, and a registered interest is placed on such item. The finance company or bank will hold the deed or title until the loan has been paid back in full, including interest and all appropriate fees.
Secured loans are typically the safest way to attain large amounts of money. A lender is not likely to loan a large amount with a guarantee that the money will be repaid.
Placing your home or other property on the line is a legitimately safe security that you will do everything to repay the loan.
Secured business loans normally offer lower interest rates, greater borrowing limits and longer repayment terms than unsecured loans.
As the term suggests, a secured loan means you are providing “security” that your loan will be repaid agreeing to the terms and conditions of the loan facility.
It’s important to remember, if you are unable to repay a secured loan, the lender has recourse to the security you have offered and may be able to sell it to pay back their loan.
Examples of Secured Business Loans:
- Business Equipment
- Equity Line of Credit
- Large Business Loan
- Vehicle Loan
Unsecured Business Loan
Unsecured business loans are the opposite of secured loans. Lenders take extra risk by offering such a loan, with no property or assets to recover in case of default, which is the reason why interest rates are noticeably higher.
If you have been turned down for unsecured credit, you may still be able to attain a secured loan, as long as you have something of value that can be used as security.
When applying for a unsecured loan, the lender considers that you can repay the loan on the basis of your monthly business income.
You will be judged based on the five C’s of credit — character, capacity, capital, collateral, and conditions – these are all criteria used to assess a borrower’s soundness.
Character, capacity, capital, and collateral refer to the borrower’s willingness and ability to repay the debt. Conditions include the borrower’s business situation as well as their professional industry.
Examples of Unsecured Business Loans:
- Business Loans
- Working Capital
Feel free to enquire today to find out how Business Loans Centre can help you with either a secured or unsecured business loan.