Unsecured business loans vs. secured business loans
posted by: Jason Hulott
Unsecured business loans allow you to raise funding for your enterprise without the risks associated with secured loans.
Therefore, it might be helpful to review the essential differences between these two sorts of borrowing.
Secured business loans
A secured loan is just that – one that is tied to and backed up by your pledge of a significant asset or assets as security to the lender in the event of your defaulting on repayment of the loan.
As the credit reference agency Equifax points out, this introduces a significant element of risk in the concept of borrowing – if you default on the repayments, the legal agreement which backs a secured loan entitles the lender to take possession of the assets given as security.
The need to draw up the legal documentation giving effect to the security of the pledged assets may itself delay the completion of the granting of a secured loan.
Secured loans nevertheless have their place since the confidence given to the lender typically allows borrowing of a more considerable sum – of more than £100,000, say, and often as much as millions of pounds – for repayment over a longer period and in situations where there may be some doubt as to the creditworthiness of the borrower.
The borrower needs to be aware that, because of the size of the loan and the extended repayment period, the total interest charges payable over the life of a secured loan are likely to become considerable.
Unsecured business loans
With unsecured business loans, however, none of your company assets are put at risk by way of security.
Instead, the lender assumes a greater part of the risk of non-repayment. Therefore, even greater weight is placed on an assessment of the borrower’s past credit record – as evidence of fulfilling responsibilities for repaying credit – the financial standing of the company and that its current cashflow situation matches the repayment schedule.
Balance sheet lenders – such as ourselves here at Cubefunder – are putting their own money at risk in advancing such unsecured business loans, so there are even stronger reasons for our understanding your company’s financial standing and to match any repayment schedule to the current demands of your company’s cashflow.
Your freedom from the need to offer any form of security – and to draft legal documents accordingly – has the considerable advantage of simplifying your application process and promoting the speed with which unsecured business loans may be arranged.
Thus, on receipt of your enquiry about such a loan, we are generally able to give a more or less immediate decision in principle. We may then consider your formal application and, if this is approved, arrange for the requested funds to be electronically transferred directly to your company bank account within just 48 hours or so.
Unsecured business loans are typically appropriate for smaller amounts of borrowing than secured loans – with the majority of those we arrange, for example, being less than £50,000. Furthermore, since repayment terms are between three and 12 months, the total amount of interest attracted by such borrowing also remains relatively small compared to laons repaid over a longer period of time.