If you have decided to take loan for your business to meet your business expenses such as moving business, purchasing machinery or equipment’s, expanding current business, finding the right type of loan is an important step. When you are running a business, it is necessary to take every financial decision very seriously. There are number of loan options available, but two of the most common business loan types are unsecured and secured loans.
A secured Business loan need upfront, personal guarantee, or an asset as security against the loan. The types of assets are Machinery and factory equipment, Investment Accounts, Real Estates, Marketing securities, Personal assets e.g. land, house, car and residential properties, Natural reserves, Stocks and bonds. As the loan is secured by an asset, it is also called as asset-backed lending or Collateral loan. Generally, types of collateral in collateral loans are fixed based on the loan type and the amount you would like to borrow. The value of collateral must meet or exceed the amount remaining on a collateral loan.
When you agree to take this loan, it means as a business owner you are making a pledge to the lender that In case you fail to repay the loan, the lender will have the right to repossess asset, sell it and use the proceeds to pay off the loan. Assets used in secured business loan reduces the risks for the lender, thus most probably lowering the interest rates.
Secured business loans are available through governments, banks or online business providers. One must meet the ways and requirements of them when applying for a secured business loan. Choosing secured business loans over other type of loans can offer a few advantages.
Here are a few reasons that you should choose a secured business loan over an unsecured one.
1. Easy to get
Not like other business loans, secured business loans are easier to get and qualify for. You will face less difficulties and hassle in getting secured personal loans. Lenders don’t face risk even if they provide loan to people with bad credit, because they know that the amount can be repaid in case of loan default.
2. Lower Interest Rate
Secured business loans always offer low interest rate compared to unsecured business loans. This is because, lenders will take your asset against loan and they have the right to use it, if you fail to repay the loan. Lenders have less risk in case of secured business loans that’s why they will charge less interest to you. If you not provide any asset, lenders charge high interest rate enough to make up for those that default. Hence, you have to pay higher amount of money for the unsecured loan option than you would for a secured one.
3. Longer Repayment Term
Secured business loans provide longer repayment period. You will get several years more to pay off your loan compared to unsecured business loan. This loans also gives the chance to build your credit and develop a relationship between loan provider and business. Lenders feel confident giving you a longer repayment period because they have that collateral to back the loan. Having a longer payoff period can make your loan terms a lot easier to deal with.
4. Lower Monthly Payment
Secured Business loans, not only offers lower interest rate and longer repayment period, it also provide lower repayment. This will be very helpful to new businesses, where cash flow can be a big challenge and if the budget is tight. Low repayment will give you financial flexibility in other areas.
5. Bigger Loans
Secured business loans enable you to take larger loan amounts, unlike unsecured business loans where the loan amount is purely based on your credit and your reputation. Lenders find risk to give you more money in case of unsecured business loan because they do not have any asset, which they can use if you default. Even if you qualify for larger loan amount in case of secured loan, you must be careful while choosing the loan amount that you can afford.
Finding the best secured loan might not be the easiest thing, but by taking careful steps in your research and decision making, you can find the thing that suits your requirements the most.
You should keep in mind that Secured business loans are easy to get and have lower interest rates, but the process of getting the loan might be longer when compared to other loans. Hence, before applying, check all the requirements, terms, options and then take your decision.