Business Loans – Secured or Unsecured

If you require funds for your business, then you must be in a fix as to which one to choose- a secured loan or an unsecured. Usually, in such junctures when we have to take some kind of financial decisions, we tend to get a little confused regarding investment and return on that investment. In this article we will try to clear your confusion.

Secured loans are the ones in which you get the money against a collateral you have offered. It is a loan against an asset. The loan will be backed by collateral which can be any property that you own for instance plant, machinery. The collateral minimizes the risk for the lender as it ensures that the borrower will repay the money in order to secure the property. In case of non repayment, the collateral can be used by the lender to compensate for the amount not paid by the borrower. Collateral's may include commercial property, vehicles, and accounts receivable. Some types of secured business loans include personal guarantee backed by home loan, car loan secured business loan against raw material or stock.

Unsecured loans are such loans where the borrower does not have to provide any kind of security. You can draw the money without any kind of collateral. Your credit worthiness will be measured on the basis of your credit rating history. Lenders find such loans risky because these do not carry any security. The rate of interest for repaying such loans is normally higher than other forms of loans especially secured loans.

Bank overdraft, personal loans and credit card loans are unsecured loans. Now that you know what these loans are respectively, we will talk about the selection. The foremost factor is that of the rate of interest. An unsecured business loan demands greater rate of interest than a secured one because the secured one has collateral against the loan. The next factor is the end use of the money. Loan against property can be used for any purpose including business. The stipulated time in which you have to repay the loan also influences the decision. Secured loans often offer extended repayment terms along with a lesser rate of interest. You can also choose between variable and fixed rate in case of secured loans.

On the other hand unsecured loans are better when you are in need of instant cash. The process of approval is quick. Hence, keeping these factors in mind will be helpful when you have to choose between secured and unsecured business loans.

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Created on Dec 31st 1969 18:00. Viewed 0 times.

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