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An introduction to secured and unsecured business loans

Fri, May. 12, 2017 Posted: 06:05 AM


Business loan is a term that many entrepreneurs are becoming accustomed to these days. With the rise in competition, it is becoming very important to be ahead of the competition at all times. But for this you will need heavy financing. It is not always possible to have the financial backing required for such ventures. This why business loan is becoming an important element in today’s industry. There are many different financial institutions who can give you the business you require for your company.

But before you can apply for one, you need to have a good idea of what are the different types of loans, so that you know your options. There are mainly two types of loans that you can opt for – a secured or and an unsecured loan. There are some basic differences between secured vs unsecured business line of credit. Let us look into the types and differences thereon.

What is a secured loan?

Secured loan is essentially a type of loan that has some security attached to it. When you are taking a secured loan, you have to keep some element as security. The lender can choose the type of security they require. Or if you have a particular asset in mind, you can go ahead and use that. The security can be in the form of an asset of the company or even some property that is owned by some managerial person in the business. The interest rate is fixed by the lender.

Examples of secures loans

If you are looking to take a secured loan, you can keep the plant and machinery of your business as security. This will help you to get the loan that you are looking for. If you are unable to keep your business’s asset as security, you can go ahead and keep some private property, for example, the director’s house as security.

What is an unsecured loan?

In contrast to secured loan, this type of loan does not have any security attached to them. You can go ahead and take the principle amount as loan and pay the interest accordingly. If you are unable to pay the loan, your assets or property will not be taken away.

Examples of unsecured loans

Short term cash flow loans are the best example for such loans. They are generally only 2 to 3 years long and do not require you to keep any form of security for them.

Secured loans vs. unsecured loans

There are many differences in these two types of loans. The first major difference is that the interest rate of secured loan is generally much lower than for unsecured loans. This is mainly because the lender has o bear much more risk in case of unsecured loan as it does not have any security. The time frames of the unsecured loans are much smaller than the secured loans.

Both these forms of loans serve different purposes and you need to make sure that you choose the type of loans based on your requirement.

David Fournier