When it comes to finding a loan that’s right for your business, it all comes down to making smart choices. Most entrepreneurs mistakenly think that long-term High-Street bank loans are the only option that they have. Others also mistakenly believe that they have no options available to them if they have a less than perfect credit score. The time to change this type of thinking is now! You do have options and you’re about to learn about 2 of the most common types of business loans right now. These are unsecured and secured loans. Ever wondered what the differences between unsecured and secured business loans were?
According to the Credit Protection Association, company debt in the UK rises substantially with each passing year. People hear the word “debt” and immediately get into a panic. Keep in mind that there is good debt and there is bad debt. And it all stems from the types of business loans you choose to get yourself wrapped up in.
Make Wise Money Choices – Let’s Compare Types of Business Loans
Comparing small business loan options should be the number one priority for you at this point. It’s important to educate yourself on what is out there and what is available to you before you start shortlisting money options. Unsecured and secured business loans are the two main types of loans that you can expect to be faced with.
The UK Money Advice Service has been providing advice on both secured business loans and unsecured business loans for quite some time now. Their content focuses on making wise, logical decisions when it comes to loans – and we wholeheartedly agree with this approach. For now, let’s cast both secured and unsecured business loans into the spotlight for some investigation and comparison. Both loan types have their value and depending on your situation and needs, either one of them could be a good option for you. Deciding which one is best really is down to understanding what each loan is all about and how they compare.
To simplify things, a table of differences has been provided below:
Unsecured Business Loans
Secured Business Loans
|Application process||The application process with unsecured business loans is quick and easy. You can apply for an unsecured business loan online in just a few minutes.||If you apply for a secured loan through the High Street bank, you will need to present yourself at the bank along with supporting documents.|
|Credit score||An unsecured business loan can be approved even with a less than perfect credit score. Lenders typically look at the individual’s affordability of the new loan and how they currently handle their finances.||An applicant’s credit score will play a role in the secured business loan application process, but in some instances where there is a co-signatory, this can be overlooked.|
|Paperwork||There is minimal documentation required for an unsecured business loan. All documents can be uploaded online.||Entrepreneurs may need to present cash flow projections and other documents to prove the viability of their intended business and to secure the loan.|
|Surety/Collateral||None required.||The applicant will be required to use an asset, such as property or a vehicle, to secure the loan. Alternatively, someone with a good credit score and the appropriate collateral can co-sign the loan to secure it.|
|Loan amount||Typically between £1,000 – £500,000||Typically between £1,000 – £2,000,000|
|Interest rate||The interest rate on an unsecured business loan is usually higher than the High Street bank as the risk is higher for the loan company.||Due to the presence of collateral, interest rates are typically low/reasonable with secured business loans.|
|Waiting time to pay-out||Unsecured business loans are typically paid out within 24 hours||Secured business loans are typically paid out within several days, even weeks.|
It is easy to note that an unsecured business loan is ideal for an entrepreneur with a less than perfect credit score and the desire to get a loan that is considered more “short term”. Most unsecured business loans are paid back over 5 years. Secured business loans are well suited to entrepreneurs looking for sizeable loans that can be paid over more than 5 years. These applicants have collateral or a co-signatory and are specifically seeking out a low-interest rate.
Whether you choose to apply for a secured business loan or an unsecured business loan, make sure that you put some thought into it. A loan, whether long term or short term, unsecured or secured, is a commitment. Give it some thought and make the choice that’s right for you and your situation.