When you need working capital in a hurry you want to reduce the time it takes to get funding. The first choice you need to make is to consider a secured or unsecured business loan. But how do these two type of loans differ from each other? Which one would best suit your business needs?
Let’s review both loans so you understand your options available:
Secured Business Loan
A secured loan is a loan backed by collateral. The borrower has to provide any form of acceptable security against the loan amount. The collateral gives the lender assurance that you will repay the loan or else lose your asset/s. With less risk for the lender, you will be able to get more favorable lending terms. It’s possible to secure a higher loan amount with lower interest rates and longer repayment terms. Approval is also easier for clients with lower credit scores.
Depending on the lender’s criteria, you can use the following collateral:
Accounts receivable (invoices)
Majority of applications use collateral that the business owns. This prevents you from being personally liable for repaying the loan. The business accepts the risk in this case.
The collateral supplied must be of equal value to the loan required and other influencing factors will also be considered. Your loan approval amount will thus be limited to the value of the collateral you have available to attach.
Unsecured Business Loan
An unsecured loan is a loan product granted without collateral guarantee. There is no need to put up assets in exchange for access to capital. The lender carries all the risk and so they charge higher interest rates to hedge their risk. The loans are only granted to businesses with good credit history.
If you don’t have assets to secure your loan, then an unsecured loan is your sole option. You may still have to sign a personal guarantee for the loan. Lenders can pursue any amount of assets in their quest to be repaid.
With secured loans you can decide on the assets you want to attach. With unsecured loans, lenders have access to any of your assets, personal or otherwise.
To qualify for an unsecured business loan, lender’s look for the following requirements:
- A clear credit record
- A large balance sheet
- Short term assets
- Cash flows that prove you can afford the loan
Unsecured loans carry more risk, but they offer a flexible way to secure funding for your business in a much shorter space of time.
|Secured Loans||Unsecured Loans|
|Collateral needed for the Loan||No collateral needed for the loan|
|Longer loan periods||Shorter Loan term periods|
|Lower interest rates||Higher interest rates|
|Lower credit terms accepted||Granted to clients with good credit|
|Business accepts more risk||Lender accepts more risk|
|Loan amount depends on the asset value||Loan amount depends on business affordability|
|Lengthily application process||Quick application process and pay outs within 72 hours|
At JKMS Loans, we provide help for Business owners looking for unsecured financing. We also assist with invoice financing and asset finance which falls under secured lending. Once you have completed our application form, we will assess your business and connect you with the most suitable lender. We manage your application for you to ensure that you receive great service and a prompt response.
For more information about our unsecured business loans please visit https://jkmsloans.co.za/unsecured-business-loans/