There are two types of business loans:
- Secured Business Loans
- Unsecured business loans
Secured Business Loans: A secured business loan is loan provided by a lender or a bank to a business which is secured by a property or assets. If the borrowers are unable to pay back the loan due to any reason, the lender can sell the property to recover the money they have lent to the borrower.
Secured business loans are normally cheaper than the unsecured business loans. It is very important to understand that while the lower interest rates and higher borrowing against the asset may sound appealing, but there is risk of the business losing that asset in case of non-repayment of the loan. So, it is important that borrowing is limited to the amount a business affords to pay.
If a business doesn’t have an asset to offer as security, the lenders would normally require a director’s guarantee. By giving a guarantee to the bank, a director is liable to pay of the business loan in the personal capacity if the business doesn’t pay the loan for any reason. For this reason, the directors by giving a guarantee have a lot more to lose in case of things going wrong in the business.
Unsecured Business Loans: As the name suggests, unsecured business loans are not secured against a particular asset of the business. But in most cases the lender still requires the personal guarantees of the directors.
As the loan is not secured against a particular asset or property, interest rates are normally very high. The unsecured loans are normally for a shorter period and are of smaller amounts. Normally, unsecured loans are restricted to $250000 by most lenders for small businesses.
Secured Business Loans | Unsecured Business Loans |
Business or personal assets of directors are used as collateral for the loan. | No assets are required but heavily depend upon the financial position of the business over the period. Lenders may require director’s guarantee. |
Secured business loans are normally cheaper as they are secured against a particular property. | As the business loan is unsecured against a particular asset, interest rates are normally higher. |
Loan amount normally depends on the value of the asset used as security. | Loan amount is normally smaller as there is particular asset used as security. |
Loan approval processing is normally slower in case of secured business loans. | Unsecured business loans approval process is normally quicker than secured business loans. |
Secured business loans are normally grated for a longer period. | Unsecured loans are normally granted for a much shorter period in comparison to secured business loans. |
Apart from the business loans, we also help you buy a commercial property. We have multiple lenders who will lend depending upon the type of asset as well as your financial position.
If you are looking to buy a warehouse, retail shop or any other commercial facility, please contact our expert team at Oracle Ezy Finance to find out if you are eligible.