Any entrepreneur may need a Business Loan at any point for their business. They can be looking for funds for expansion, working capital, product or market research or adding new inventory. Notably, Business Loans are of two types – secured and unsecured.
A secured loan is one where the borrower pledges collateral, such as a piece of property, to the lending institution.
In comparison, an unsecured loan does not need to be backed by any collateral and is therefore preferred by entrepreneurs.
When you plan to apply for a Business Loan online, you should know the differences between secured and unsecured loans to make the best decision.
Secured Business Loan
Secured Business Loans are a type of loan backed by collateral, which can be any property, equipment, or inventory.
If you default on the repayment, the loan provider can take over the collateral to compensate for the loss.
Secured Business Loans are typically less risky for the lending institution.
If you consider taking out a secured Business Loan, ensure that you have adequate collateral to cover the loan amount. It is recommended to avoid putting your business at risk by pledging too much collateral.
Unsecured Business Loan
An unsecured Business Loan is a loan for which the borrower does not have to pledge any collateral. These loans are easier to access, require less paperwork and are disbursed quicker than unsecured loans.
This is a big advantage and with the other exclusive features of unsecured Business Loan, they have become the go-to financial instrument for young entrepreneurs.
An Unsecured Loan or A Secured Loan? Which Is Better?
Secured and unsecured loans both have their own pros and cons, so it’s crucial to understand the difference between them before deciding which is right for your business.
A secured loan is backed by collateral – typically, this is either a property or an asset that can be used to repay the loan if you default on it.
When you default on a secured loan, the loan provider can seize the collateral, so it’s important to ensure you can afford the repayments before taking out this type of loan.
On the other hand, an unsecured loan does not require any collateral. Even better, with NBFCs taking charge, the documentation and accessibility of these loans has reduced exponentially.
This is why unsecured loans are easier to get approved for than secured ones, especially if your business has no assets that can be used as collateral.
Types of Unsecured Loans
There are many unsecured loans, but the most common are Business Term Loans, Working Capital Loans, and Personal Loans.
Business Term Loan
A Business Term Loan is a loan repaid in regular payments over a set period of time. It can fund your high-cost investments like business expansion or purchasing tools or machinery for a smooth-going business.
Working Capital Loan
Business owners can easily fund their daily expenses with a Working Capital loan. It lets businesses grow and provides flexibility with liquid funds. It also lets businesses operate smoothly and gives your business an added advantage. Different businesses can take this loan for different purposes.
Types of Secured Loans
Different secured loans are available to business owners, each with advantages and disadvantages. We have discussed the most popular Secured Loan below.
Loan Against Property (LAP)
Loan against property lets entrepreneurs utilise the value of their property. Business owners can take a loan against property to expand their business, meet capital requirements, buy equipment or meet any unplanned or unforeseen business needs. You can get a loan against your property as collateral and repay in EMIs over an agreed tenure.
There are many differences between secured and unsecured Business Loans. It is important to understand them before applying for a loan to select the type of loan that is ideal to your needs. When you apply for Business Loans with Clix Capital, you get competitive interest rates, budget-friendly EMIs and a simplified documentation process.
Take your business to new heights with the funds you need!