{"id":2554,"date":"2018-06-26T15:14:03","date_gmt":"2018-06-26T12:14:03","guid":{"rendered":"https:\/\/www.lending-express.com\/blog\/?p=2554"},"modified":"2019-11-03T16:55:11","modified_gmt":"2019-11-03T14:55:11","slug":"why-are-unsecured-loans-so-different-to-secured-bank-loans","status":"publish","type":"post","link":"https:\/\/www.become.co\/blog\/why-are-unsecured-loans-so-different-to-secured-bank-loans\/","title":{"rendered":"Why Are Unsecured Loans So Different to Secured Bank Loans?"},"content":{"rendered":"

What’s the Difference Between Unsecured Vs Secured Loans<\/span><\/h2>\n<\/p>\n

If you\u2019re a small business owner and in need of capital, you\u2019re not alone. A whopping <\/span>82% of small businesses fail <\/span><\/a>due to cash flow issues. It\u2019s therefore extremely important to know the differences between secured and unsecured loans in order to find out which is best for your needs.<\/span><\/p>\n<\/p>\n

If you\u2019re 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. <\/span><\/p>\n<\/p>\n

What Does \u201cSecured Loan\u201d Mean?<\/span><\/h2>\n<\/p>\n

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\u2019t pay back the loan. <\/span>
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\n<\/span>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. <\/span><\/p>\n


\n<\/span>The problem<\/strong>, 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\u2019t qualify. The numbers are grim, according to <\/span>Biz2Credit\u2019s latest reports<\/span><\/a> (June 2018) despite figures rising, it\u2019s only 25.9% of small businesses that qualify for bank loans after the long, grueling process. For those who <\/span>do<\/span><\/i> qualify be warned that if for whatever reason you default, you could lose your asset. <\/span><\/p>\n<\/p>\n

What Is an \u201cUnsecured Loan?\u201d<\/span><\/h2>\n<\/p>\n

For those wondering \u2018what is an unsecured loan?\u2019 – these types of loans aren\u2019t 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\u2019ll 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.<\/span><\/p>\n<\/p>\n

For Those Who Need Fast Loans<\/span><\/h2>\n


\n<\/span>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\u2019s always the option to extend. Once you\u2019ve built up a good relationship with your lender, you could renew your loan after you\u2019re half-way through paying the first one off. \u00a0<\/span><\/p>\n<\/p>\n

There are stricter debt-to-income requirements for unsecured loans, meaning they aren\u2019t based on your credit score but the health of your business. Due to a lack of collateral, you\u2019ll only be able to borrow an amount that correlates with what your business makes in a month. <\/span>
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\n<\/span>Top Tip:<\/b> Make sure that all of your business expenses go directly through your <\/span>business <\/span><\/i>bank account, for if they don\u2019t, the cash won\u2019t count and you\u2019ll qualify for less (a smaller loan). <\/span><\/p>\n<\/p>\n

A Quick Sum-up: Unsecured Vs Secured Loans<\/span><\/h3>\n

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Deciding which kind of loan is best for your business<\/span> is<\/span><\/i> tricky business. <\/span>
\n<\/span>If you prefer the idea of:<\/span><\/p>\n