Secured vs. Unsecured Business Loan - What’s the Difference?
You may need a small business loan to finance new equipment or inventory purchases, marketing strategies, or other business-related expenses when expanding a business. According to findings from a survey, small businesses in India grew their sales by 9%, income by 10%, and assets by 7% annually after taking a business loan.
A business loan provides the resources to fuel growth, improve operations, and increase profitability. However, you need to choose the type of business loan you want: a secured business loan or an unsecured business loan. Each type of loan has its terms and conditions.
We’ll discuss secured vs. unsecured business loans to help you understand both financing options and determine which is appropriate for your business needs.
What is a Secured Business Loan?
A secured business loan is a type of financing loan in which you pledge some collateral, such as a house or any other property, to secure the loan. The loan provider can use your asset as security if you default on the loan repayment.
A secured business loan is ideal for small business owners looking to use their personal or business property as security. A typical secured business loan eligibility criteria include:
- You must offer collateral that is acceptable to the loan provider. You must be the legal owner of the collateral, and it should be free from any legal disputes.
- The current market value of the collateral determines the loan amount you can get against it.
- A higher credit score can result in lower secured business loan interest rates and better loan repayment terms. The financial institution will assess your credit history to evaluate your loan repayment capability.
- Past defaults or any irregularities in loan repayment behavior may negatively impact your secured business loan eligibility, even if you offer collateral.
- You must submit your identity, address, and income proofs to secure business loans.
- You can get a secured business loan from us for your seasonal or regular market demand just like a bangle factory owner, Vijay. We help small businesses, such as dairies, farms, medical stores, sanitary and hardware stores, and home decor stores, achieve their goals with our easy loan approval process and attractive interest rates.
What is an Unsecured Business Loan?
An unsecured business loan is the exact opposite of a secured loan. You do not require any assets as collateral. Your loan terms are entirely based on your credit score.
Due to the increased risk for the loan provider, unsecured business loans often have higher interest rates than secured small business loans. Additionally, getting a higher unsecured business loan amount is harder as the financier wants to minimize their risk.
Secured vs. Unsecured Business Loans: The Key Differences
The main difference between secured and unsecured business loans is the availability of collateral property. It also determines other aspects of the small business loan, such as the loan terms and amount.
| Secured Business Loan | Unsecured Business Loan |
| Requires collateral such as house or property | The financier relies entirely on the borrower’s credit score and financial history |
| Easy for small business owners with a steady income | Harder loan approval process for borrowers with a low credit score or a shorter business history |
| Lower interest rates since the financier’s risk is mitigated by collateral | Higher interest rates due to lack of security |
| Allows for higher loan amounts because the loan is backed by valuable property | Lower loan amount due to increased risk |
The Advantages of Taking Secured Business Loans
Business owners with a well-defined business plan and a demonstrated potential for growth stand to benefit greatly from a secured business loan.
- Reduced interest rates: Secured business loan interest rates are lower because of the mitigated risk.
- Larger loan amounts: The loan amount can be up to the current market value of the collateral you provide, which means you can get more capital for your business.
- Longer and more flexible repayment terms: Due to collateral security, financiers offer longer loan repayment periods, reducing pressure on the cash flow of your business.
- Quicker loan approval procedure: Secured business loans are approved quickly once the collateral’s market value is verified. Financiers are more willing to offer favorable loan repayment terms and competitive interest rates.
For example, we at SK Finance helped Mr. Ghanshyam Sharma’s General Store sail through the market disruptions during COVID. We have saved many small local businesses from being shut down by providing easy financial aid through our secured business loans.
Here is our secured business loan schedule of charges.
Grow Your Business with a Secured Business Loan!
Getting a secured loan against collateral provides a safety net to financiers and helps you acquire small business loans with little or no credit history.
If you run a small business and possess valuable assets, apply for secured business loans with SK Finance. We offer funding to invest in your business equipment or inventory and manage cash flow at flexible loan repayment terms and attractive interest rates.
You can seek a small business loan to grow your small stores and businesses, including milk dairies, flower shops, general stores, lighting and electronic stores, and more. Never worry about reducing stocks or insufficient cash flow.
With a convenient application process, minimal documentation, and swift loan amount disbursement, securing funds has never been easier. Visit your nearest SK Finance branch to grow your business revenue this festive season.
