Secured vs Unsecured Business Loans

There's all sorts of business financing options available today, but what it all boils down to is whether or not some form of collateral will be required. Not all business loans and credit lines require you to put something up as security and it's important to know what your options are before you set off to compare what's out there.

A secured business loan simply means that you will have to wager something in return for the financing, an item of value. This asset can be a piece of property, inventory, AR, or even equipment. In exchange for your collateral, the bank will typically offer a longer term to repay the funding, sometimes as much as five-to-fifteen years. Another great benefit is the rate the bank lets you borrow the money at. Since the risk is minimized, the bank will usually offer a lower interest rate for the money. The bank's risk is reduced because if your business doesn't pay, they'll collect on your collateral. This makes a secured loan very attractive if you're certain you can repay the debt.

There's a couple of things you want to be aware of before you apply for a secured business loan. First, there will be upfront fees to cover the cost of an appraisal and this ranges from a few hundred to a couple of thousand dollars. Secondly, the time it takes to process and fund a secured loan can take anywhere from a couple of weeks to more than a month. Lastly, there is going to be a long list of paperwork required from you. It's important to know this ahead of time because if you can't wait or don't have the funds available to cover the upfront fees than a secured business loan may not be your best route.

What do you do if you don't have collateral, time to wait or cash on hand to pay upfront fees?

Unsecured business loans don't require anything in exchange for the financing. Since banks and lenders don't have to research the value of your asset(s), they are focused on your time in business, gross annual revenue and use of funds. This allows lenders to make a solid decision in as quick as a few hours or a day or two with as little as an application and a few bank statements. These loans can be very appealing due to the expeditious process and the amount of time saved since minimal paperwork is required. Unsecured loan options are heavily favored by most entrepreneurs that have an immediate opportunity to capitalize on.

Similar to a secured business loan, there are a few things to be prepared for before seeking an unsecured business loan. First, the timeframe you will be given to repay the financing will be a bit shorter, usually between six-months to thirty-six months. The positive here is that the business can qualify for additional funding several times throughout the year without carrying long-term debt. Secondly, most unsecured loans don't have any personal credit restrictions meaning if you have good credit or bad credit your company should still qualify pending the rest of your business is well rounded. Lastly, the cost you'll pay to borrow the capital can be more than a secured loan since the risk is higher for a bank or business lender. You will want to find out and make sure there is an incentive or discount to repay the financing early to save on as much interest as possible.

Business loans are quite easy to understand if you're working with an experienced business advisor who knows the ins-and-outs of today's guidelines and products available for their clients. 

Reach out to me directly if you would like to learn more about what your business or one of your clients may qualify for. I have helped more than 8,500 entrepreneurs receive funding over the last seven years and I'm committed to doing the same for you.