Why Are Unsecured Loans So Different to Secured Bank Loans?
What’s the Difference Between Unsecured Vs Secured Loans
If you’re a small business owner and in need of capital, you’re not alone. A whopping 82% of small businesses fail due to cash flow issues. It’s therefore extremely important to know the differences between secured and unsecured loans in order to find out which is best for your needs.
If you’re scratching your head as to why unsecured loans are so different to the secured loans that you find in the bank – allow us to clear the air.
What Does “Secured Loan” Mean?
Secured bank loans mean that the lender will accept a large asset (for example your car, house or a portion of your business) to act as a security net, just in case you can’t pay back the loan.
For this reason, secured vs unsecured loan interest rates largely differ. Due to lender gaining rights to an asset should the loan fall through, a secure bank loan is far safer for the lender and more affordable for you, the borrower, due to the lowered risk that allows for lower interest rates.
The problem, however, is that secured bank loans are extremely difficult to get ahold of. They entail a huge amount of paperwork, timely visits to the bank and after all that effort the chances are, you won’t qualify. The numbers are grim, according to Biz2Credit’s latest reports (June 2018) despite figures rising, it’s only 25.9% of small businesses that qualify for bank loans after the long, grueling process. For those who do qualify be warned that if for whatever reason you default, you could lose your asset.
What Is an “Unsecured Loan?”
For those wondering ‘what is an unsecured loan?’ – these types of loans aren’t tied to any assets at all. And with no collateral, these loans are risky business for the lenders. Their risk is far greater than secured loans with cushiony assets to fall back on. This is the very reason that you’ll find the interest rates being higher – everything has a price, and this is the price for you never having to risk an asset being taken away from you.
For Those Who Need Fast Loans
These loans are extremely fast, if you find your business in financial trouble, you can get one of these babies in as little as 24 hours – yes way! The loan will be smaller and have shorter terms but there’s always the option to extend. Once you’ve built up a good relationship with your lender, you could renew your loan after you’re half-way through paying the first one off.
There are stricter debt-to-income requirements for unsecured loans, meaning they aren’t based on your credit score but the health of your business. Due to a lack of collateral, you’ll only be able to borrow an amount that correlates with what your business makes in a month.
Top Tip: Make sure that all of your business expenses go directly through your business bank account, for if they don’t, the cash won’t count and you’ll qualify for less (a smaller loan).
A Quick Sum-up: Unsecured Vs Secured Loans
Deciding which kind of loan is best for your business is tricky business.
If you prefer the idea of:
- Quick, online business loans
- No collateral
- Need funding as quickly as possible
…then an unsecured loan has your name on it.
How to Apply for an Unsecured Loan:
Become is a premium loan marketplace, providing quick and easy access to business loans, finding lenders who are best suited to your needs. If you qualify, in this unique matchmaking system, lenders will actually compete for you, and not the other way around. Note that no hard credit check is needed whatsoever.
To apply for unsecured business loans follow these steps:
- Apply online via the simple application form below to see if you qualify
- Get loan offers from multiple online lenders
- Choose the offer and lending company that you prefer
- Receive funds in as little as 3 hour
And there we have it, hopefully, that should have cleared up the key differences between secured and unsecured loans. If you have any questions, be sure to reach out to us or comment below.