As a business owner, you will need some additional capital at some point or other in the form of private business loans to operate your business smoothly. But when you are planning to take out a business loan, you will come across different financing options. As a result, you need to select the best one that suits all your requirements.
As with any business loan form, debt structure and payment schedule entirely depends on the bank or lender you choose, your business credit history, and other factors. Due to these factors, you might not get access to funds unless it is secured. That is why, before applying for business loans in NZ, you should determine whether you need to pursue an unsecured or a secured option.
However, the question is how to pick between secured and unsecured private business loans. If this a question you would like answered, this article will assist you in determining which business financing is the best choice for your business venture.
Secured Loans
A secured business loan is a private business loan type and is the most common and straightforward business funding option. These loan types are backed by a business or personal assets. You can apply for it and access working capital if you submit your property to be used as security. Equipment funders can use machinery or equipment as security also.
Though you will find many 2nd mortgage lenders who offer this kind of business funding, you might need to consider the risk associated with secured loans. It is because, as a borrower, if you, by chance, default on your loan or fail to repay, the lenders may want to recover the property to recoup their loss. However this is always a last resort for lenders.
But irrespective of the risks associated with secured loans, you also get many benefits from this financing option that can assist you business. You can get lower interest rates and higher loan amounts and pay them off for an extended period. The advantage of secured funding includes:
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Easier To Obtain
If you have a valuable business or personal asset, you can get the money hassle-free from secured loans. As you should submit your property as security, the 2nd mortgage lenders or other business loan lenders have less strict loan eligibility criteria. That is why secured loans are perfect for those business professionals, still new in the industry.
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Affordable Interest Rate
Secured business loans come with competitive rates because of the submitted collateral, which reduces the lender’s risk. That is why secured loans can be your ultimate option, if you want to avoid high-interest payments.
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Longer Loan Repayment Period
By taking out a secured loan, you can have longer repayment terms ranging between 10 to 30 years. As a result, if you cannot repay your loan in a shorter term, opting for a secured loan can be beneficial.
Unsecured loans
On the contrary to secured loans, if you apply for unsecured business loans in NZ, you do not need to bother about submitting any collateral or asset to the business loan lender to qualify for the loan and receive financing. That is why, unsecured business loans are a viable funding alternative for business owners with good personal and business credit scores.
Like secured loan lenders, you will get many private mortgage lenders who offer unsecured loans. But in this type of business financing, the lenders have more risk associated with their money. It is so because if you fail to repay the money or default on your payments, they do not have any assets to seize and recover their money. Due to this factor, unsecured loans come with strict eligibility criteria such as credit score requirements and higher interest rates. This funding is beneficial for small business owners or entrepreneurs who require working capital, swiftly.
But if you default on your loan, the lender might take action to recover their debt. For example, they might take the following actions:
- Pursue legal action against your business
- Employ a collection agency
- Sell your outstanding debt to a third party
Let us now check out the pros of applying for unsecured funds below.
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Free of Collateral
The benefit of an unsecured loan is that if you do not have to offer any form of security, you can still qualify for the loan with a good credit history and cash flow.
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The Shorter Loan Application Process And Quick Disbursal
The business loan application process for unsecured loans is straightforward. If you have a good credit score and your monthly sales are high, you can expect to get the fund within 24 hours of the loan application.
Bottom Line
By reading the above article, you can understand that for new business owners or entrepreneurs, secured business loans in NZ might be the only available alternative. But if you are in the industry for several years, you can take out an unsecured business loan that offers smaller loan amounts, flexibility, and rapid funding approval. Therefore, before applying for any loan, you should consider your current business standing, cash flow, amount, interest rate, and other loan terms and conditions. In this way, you can select the best loan options to meet all your business requirements.