Unsecured VS secured: Know your Basic Loan Differences!

Unsecured VS secured: Know your Basic Loan Differences!

If it is your first time applying for business loans, it is essential to have all the facts in line about the different types of financing options. Let’s start with the basics! You can divide business financing into two categories; secured and unsecured business loans. In this blog, we will walk you through the differentiating points between the two, so you can approach a lender or finance broker, full-equipped with knowledge.

What is a secured business loan?

The terms secured business loan is self-explanatory! It’s the kind of business loan secured against collateral or security, mostly real estate, by a borrower. It is common for new businesses to apply for secured loans either for starting a venture or expanding the business. Start-ups with cash flow issues also apply for secured business loans. To apply, you need to have:  An active Australian Business Number  No minimum trading history required  Proof of ownership of the collateral with sufficient equity for the loan

The most common types of secured loans are start-up business loans, property loans, and equipment finance.

What is an unsecured business loan?

A loan that is not secured against any collateral or security is an unsecured business loan. The lender approves the loan after assessing the cash flow and credit score of the business and its owner, respectively. Unsecured business loans are preferred by small businesses, often suffering from a cash crunch, when running operations. The eligibility criteria are similar to secured business loans, apart from the collateral specifications.

Features:  Loan amount - $5000 - $500,000  Loan term – 3 – 36 months  Interest rate – starts from 5.5% (per annum) The common unsecured loans are unsecured small business loans, invoice finance, and unsecured business lines of credit.

Secured business loan VS Unsecured business loans Now, let’s do a quick run-through of the differences between the two.

SECURED BUSINESS LOANS UNSECURED BUSINESS LOANS 1. You need to secure the loan with 1. No need for collateral to get the collateral. loan amount.

2. There is no cap amount. The lender 2. There is a cap limit since the loan is will agree on a loan amount based on not secured by collateral. the value of the security or collateral. 3. Loan term is usually shorter 3. Loan term can go up to 25 years. between 3-36 months.

4. It poses risk for the borrower. If 4. Since this is unsecured, the loan he/she is unable to the repay the loan, poses more risk for the lenders. the lender takes possession of the 5. Fast approval possible within 24-48 asset. hours.

5. Takes slightly longer to get approval.

Conclusion Hopefully, we helped you understand the differences between secured and unsecured business loans and the loan categories. If you are applying for a secured or unsecured loan, you can reach out to a private lender or a finance broker, like Broc Finance. The latter can save you the hassle of connecting with multiple lenders and presenting your application for approval. Finance brokers

have a network of private lenders and finance companies via which they can secure your desired funding at favourable terms and interest rates.

Source: https://www.brocfinance.com.au/blog/unsecured-vs-secured-knowyour-basic-loan-differences/