Ensuring that you have sufficient capital to finance your start-up or small business is a priority for many entrepreneurs. If you need money to start a new business or your current business is suffering from cash flow problems, taking out a loan can be one solution to these issues. However, even if you are well versed in the business world, the financial world can be more daunting. This simple guide explains the different types of business loans available to you and looks at the differences between secured and unsecured loans.
What are secured loans?
Secured business loans are taken out against your home or any other property that you own. As your property acts as collateral, these loans tend to facilitate larger loan amounts with lower interest rates, resulting in lower repayments. You may repay a secured loan over a longer period of time, which can be advantageous if you are just starting in the business world and have not generated consistent revenue yet.
What’s more, secured loans can be appropriate for anyone with a bad credit history as you are more likely to get a secured loan than an unsecured loan with poor credit. However, secured business loans may involve a lengthy application process and incur fees. If you fail to make the repayments on your loan, you could lose your property.
What are unsecured loans?
Unsecured business loans can be rapidly obtained and are useful if you only want to borrow a small amount of money. Additionally, your property is not at risk when your loan is unsecured. Unfortunately, if you have a poor credit rating, you may struggle to find an unsecured loan or find that you are only offered loans with higher interest rates. They may also be unsuitable if you require a significant cash sum as most lenders will not take the risk without security.
Which one is right for me?
If you do not have property against which you can secure your loan or you do not want to take the risk of losing your home if you cannot make the repayments, then it is best to opt for an unsecured business loan. However, if you need a large amount of money, want to keep the interest rates down and are confident that you can repay the money without falling into arrears, then a secured loan may be a better option. Ultimately, choosing between a secured or unsecured loan will depend on your circumstances and individual requirements.
Business loans – where to find out more
Tower Leasing have supported the investment and growth of over 40,000 SMEs. No matter what your plans are, we have the business finance products in place and the expertise to help you see them through. Read about the alternative forms of finance we can offer or get in touch to find out how we can help.