Another question which we often get asked is what is the difference between a secured and an unsecured loan and which option is best for me? There is actually a really simple explanation.
A secured loan would be a financial agreement taken against a business asset or a property, therefore if there are ever any issues with repayments not being met then the asset or property that has been used as security can be seized. An unsecured loan means you can take out a specific financial agreement, but you do not need to use any collateral as part of the agreement. Typically, the value of lending for a secured loan would be considerably higher than an unsecured loan.
If we summarise this further the key differences between the 2 are:
- Securities required against the loan
- Varying levels of application complexities
- Value of lending available
- Differentiation in available interest rates
- Length of term for the funding
As we have already mentioned a secured loan means funding is secured against a business asset or a property. The unsecured loan means no security is required and the loan approval is based on the financial status and credit of the business.
A secured loan is often a simpler process as you have the security of the asset being used as the collateral. The unsecured process means the company will have to submit more details about their credit history and financial stability. Of course, the difficulty of the application process will vary for each option and each application (based on specific circumstances).
Value of lending
A secured loan would allow a business to apply for a larger value of funding thanks to the asset being used as the collateral, the unsecured option often results in a lower level of funding being made available.
We all know that interest rates fluctuate but often a better rate will be available for a secured loan due to the available terms and security of the asset or property.
Length of terms
The terms of repayment are based on an individual business’s situation, often a secured loan will be taken over a longer period of time in comparison to an unsecured loan. Mainly this is down to the simple fact that the secured loan is for a higher value.
To summarise both a secured and an unsecured loan have their benefits, as they are so universal the choice really depends on an individual circumstances. Your best option is to speak with an independent finance specialist who can quickly establish your needs and match you to the right funding.
One final point of note, 12-months ago companies were still able to take advantage of the government backed lending scheme (RLS), which gave the opportunity to take unsecured loans without having to offer any meaningful business information. This has all stopped now and lenders are becoming much tighter on information needing to be submitted during the application process.
If you need some help with regards to a secured or an unsecured loan, then our team of financial specialists are available. Please call us on 01993 706403 or e-mail email@example.com.