Business Loans - Understanding evolving terminology

 

When applying for a business loan from a bank, building society or any other finance provider, we often have an important decision to make: do we secure the finance against our business or do we opt for a traditional unsecured loan? Both are viable options, depending on the individual case, but which one is the right decision?

Breaking down the terms

The terminology itself can often be misleading, as the term ‘unsecured’ implies a lack of security around the loan. This can make some people nervous before applying, but the fact is both loans are perfectly safe for the borrower, at least if used correctly and paid back on time. Lenders are keen for businesses to use the right type of loan and would generally prefer customers to apply for a business loan if that is indeed the desired goal for the finance.

There’s one key difference between the two – a secured business loan is attached to the profitability of your business. They work in a similar way to a mortgage or any other form of property finance. In contrast, an unsecured loan is where the person giving you the money has no security and therefore no safety net should you fail to pay the loan. Due to this, higher interest could be charged but you don’t have that fear of an asset being taken away. An unsecured loan is generally a lower value loan that will probably be paid over a shorter period of time. They are by far the most common loans as not everyone has an asset they can use as capital and also people are hesitant to put their assets at risk.

A business loan is often the preferred way to secure finance for a business. It is supplied for that sole purpose and the lender providing it usually has methods of recouping the loan, should the business succeed or not. You can generally receive a higher loan amount than with unsecured loans as the bank or company will be more comfortable with lending money. Also, you often receive lower interest rates due to that added security.

What are the advantages of a business loan?

A secured business loan is often a reliable and safe way to gain finance for a new startup or for business growth in general. If offered, then it means the lender has reviewed the borrower’s business plan and finds merit within it. Otherwise, they wouldn’t offer the finance in the first place. This is encouraging for any entrepreneur, as it supports the view that their ambition is grounded in reality. That success is realistic. For this reason, a secured business loan should be considered over opting for an unsecured loan. There is less risk and the lender also typically offers a support system that unsecured finance does not.

Business loans – where to find out more

If you’re looking for finance for your business, why not talk to us about the alternative finance solutions we offer. We can help with a full range finance solutions – products and services aimed at business development and growth. Regardless of how much capital you need or how big you are as a company we can normally help. Our transaction size starts from as a little as £1,000 and we have arranged funding facilities for brand new starts ups with little to no trading history to those turning over millions of pounds. Get in touch with us today.