Know about the Finance and Investments Terms

Suppose you are in need of an urgent funding to take your business to the next level. When approached for the business loan, the bank or lending institution may ask you to pledge an asset, or contrarily, offer the funds minus any collateral or guarantee. The former   arrangement is called secured business loan while the latter is known as unsecured business loan. Let’s get into the pros and cons of the two for an in-depth understanding. 

Advantages of Secured business loan: 

• A secured business loans guarantees larger funds, depending on the pledged asset. Usually, about 75% of the asset’s value can be availed as a loan. 

• Since the risk of a default is covered by the collateral, the lenders can provide competitive interest rates. 

• The repayment schedule may stretch beyond 5 years, ensuring stress free repayments. 

• Secured loans may be the only option available for people with poor credit score. 

Disadvantages of Secured business loan: 

• In case of non-repayments, you may lose the pledged asset’s ownership to the lender. 

• Upfront costs in form of administration fees are involved. 

• The process is slow due to hassles like property valuations. 

Advantages of Unsecured Loans: 

• Apt for small fund requirements.

• The risk of repossession of the pledged asset by the lender is eliminated.

• The loaning process is simple and quick, usually taking 24 hours for approval. 

• Easy on the pocket with low upfront costs involved. 

Disadvantages of Unsecured Loans: 

• The lender may deny a request for a larger loan, especially when your credit score is low or your business is not performing well. 

• The interest rates are slightly higher as the lender has to compensate for the missing guarantee.

Read Also: what are secured business loans unsecured business loans