Borrowing money can provide a much-needed financial boost to business owners as they prepare to expand or to help manage cash flow when times get tough. There are two basic options: secured and unsecured loans.
We run through the pros and cons of secured and unsecured business loans, to help you in your borrowing decisions.
PROS OF SECURED BUSINESS LOANS
+1. Lower Interest Rates
Secured business loans typically offer lower interest rates than unsecured loans. The reason: Secured collateral reduces the lender’s potential risk.
+2. Longer Repayment Terms
Secured loans often offer longer terms, easing the way for repayment and reducing the risk of default.
+3. Easier to Obtain in Higher Amounts
Secured loans generally are easier to obtain in higher amounts because collateral limits a lender’s exposure.
CONS OF SECURED BUSINESS LOANS
-1. Business Must Be Established
Although each lender sets its own requirements, most will require that a loan recipient be in business for a set number of years under the same ownership to qualify.
-2. Requires Collateral
If you don’t have an asset like inventory, equipment or real estate to offset the loan, you probably won’t qualify.
-3. Can Lose Collateral
If you’re unable to repay the loan, you’re at risk of losing the assets you provided as collateral.
PROS OF UNSECURED BUSINESS LOANS
+1. Collateral Isn’t Required
Instead of collateral, other considerations like business plans and market opportunities are reviewed for eligibility—allowing startups and businesses lacking collateral to still qualify.
+2. Quicker Application Process
Lenders don’t have to evaluate collateral and instead can focus on other factors to determine creditworthiness—streamlining the process for faster funding.
+3. You Won’t Risk Collateral
The lender would have to go to court to secure an order to seize any property in case of default. If you can’t pay back your loan, however, the lender will have legal rights to pursue personal assets to make up for losses.
CONS OF UNSECURED BUSINESS LOANS
-1. Higher Interest Rates
Unsecured business loans are riskier for lenders and, as a result, they typically charge higher interest rates and fees than with secured loans.
-2. More Difficult Qualification
Without collateral, lenders will consider such things as business credit score, annual revenue and cash flow projections to determine eligibility. Given this, business owners with low credit scores will struggle to qualify.
-3. Often Smaller Loan Amounts
Because of the increased risk, lenders are often less willing to approve large amounts of money.
WHY CHOOSE US
At TruFinCo, we know that starting or growing a business can be scary, and we are here to help you. We are a correspondent lender comprised of real, passionate people. Our team works with hundreds of other lenders to make sure you get the funding you need.
We find out your story, choose the best option for you, and even give you an alternative. By removing all the pain points, we make the funding process easy. Our goal is not only to fund you but also to coach you.
Our firm specializes in strategic credit restoration and consulting to guide you to a better financial future. We have a team of dedicated professionals on a mission to help clients go from feeling defeated and stressed out to being empowered and on track to a brighter future.
To learn more about our services or to book a free consultation, get in touch. We’re here to help you succeed.