A fast business loan is a debt by a person or a company from traditional lending institutions like banks or private lenders. The lender or the bank offers the money to borrowers in exchange for terms that include interest, finance charges, a repayment schedule, and other conditions.
These loans are divided into two categories: secured loans and unsecured loans. As each one is different and have varying conditions, you must determine the type of financing you need for your business. While doing this, many borrowers get confused and cannot decide what to select. Similarly, you might also get bewildered while choosing between secured or unsecured quick loans for business. So, in this guide, we will discuss some crucial facts about both these loan types to help you pick the most suitable one. Hence, without further delay, delve into the below discussion now.
1. Secured Loans
A secure fast business loan uses an asset as security or collateral for the loan. When applying for such a loan type, you can use your home, commercial property, or vacant land. The bank or the lender will keep a charge over the property until you fully repay the loan with applicable interest and other charges.
Benefits of Secured Loans
The most outstanding benefit of secured loans is that you can access a decent amount of capital, even with a poor credit score. In other words, it is a bad credit business loan you can get without thinking about your credit score. Besides this, secured loans have the below advantages.
Increased Chances of Loan Approval
As you need to put your asset as security for your loan, you have better chances of getting the loan approval. It is one of the primary benefits of a secured loan, as you will not get such an advantage when applying for unsecured fast business loans.
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Higher Loan Amount
Similarly, if you have a large amount of equity in a property, the lender of bad credit business loans can offer you a larger loan amount. Even if you just started your business or have a low net worth, you can still get access to a decent amount if there is sufficient equity.
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Affordable Interest Rate
One of the notable benefits of secured loans is that you can secure a large amount at an affordable interest rate. By providing your asset, you will minimize the lender’s risk. Due to this, they will offer the loan at a lower interest rate than unsecured business loans.
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Flexible Repayment Facility
While selecting between secured and unsecured quick loans for business, you should consider these pros. Repayment terms play a crucial role when applying for any funding type. When you apply for a secured loan, you will get a long repayment period.
Drawbacks of Secured Loans
Secured loans come with the below disadvantages as well.
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Heavy Paperwork
Some secured loans need significant documentation to submit related to the security being offered and your financial situation. As a result, the entire process can be tedious when you urgently need money.
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Risk
The biggest drawback is if you fail to repay the loan, the lenders can sell up the security to have the loan repaid.
2. Unsecured Loans
Unsecured loans are a financing type where you do not need to offer any asset to the bank or lender. You can use the loan to expand your business or manage the business cash flow.
Benefits of Unsecured Loans
When you apply for unsecured loans, you can reap the below benefits.
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No Collateral Required
As mentioned earlier, you do not need to put your asset at risk when applying for unsecured loans.
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Quick Loan Approval
Unsecured loans are like fast business loans. With less paperwork, you can access the money within 24 hours of the loan application.
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Loan Amount Not Restricted by Security Value
If your credit score is high, you can get a decent amount from unsecured loans. The lenders look at your cash flow, creditworthiness, and other parameters to determine the loan amount.
Drawbacks of Unsecured Loans
The most notable cons of unsecured business loans are as follows.
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Need High Creditworthiness
Getting the loan approval for unsecured loans can sometimes be difficult. As you do not need to offer your collateral, the lender will evaluate your creditworthiness by looking at different parameters. In simple words, the lenders keep the eligibility criteria strict, where the borrower needs to have a good credit history.
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Higher Interest Rate
One of the drawbacks of unsecured loans is that you may need to pay higher interest rates, compared to secured loans. As the lender has more risk, they will require a higher interest rate to mitigate their risk.
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Smaller Loan Amount
As you do not need to put your collateral to get the loan approval, the lenders and banks ensure the loan is repayable. That is why they offer small loan amounts to minimize their risk. It is another drawback, especially when you need some extra capital for your business.
Which Loan Will be Suitable For The Business?
The loan type that will be suitable for your business depends on the situation it is in.
Final Thoughts
By now, it must be clear that these loan types have some benefits and drawbacks. So, before applying for any of these quick loans for business, you must consider those and choose one that best suits your business need. Remember that you should apply for a loan to help your business thrive not only survive.