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Secured or Unsecured Business Loans: Which is Better?

Secured or Unsecured Business Loan
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When you’re considering your small business funding options, you’ll often encounter terms like secured or unsecured, especially in the context of secured or unsecured small business loans.

But what do these terms mean, exactly? Do they have something to do with the security or safety of the loan? 

We can answer that one right now – no, but they have everything to do with how risky the loan is for the lender. We’ll get into more details on that in a minute. You might also be wondering what the differences are between secured and unsecured small business loans. 

What are their advantages, and disadvantages? Is one type of small business funding – secured or unsecured small business loans – more right or wrong for my small business? 

These are all important questions and considerations when you are managing the finances of your small business, and we’ll be happy to walk you through all of them in detail. 

Read on to learn the answers to these important questions.

The Difference Between Secured and Unsecured Small Business Loans

On the most basic level, secured and unsecured are terms that relate to whether or not a debt (a loan, line of credit, or similar) is backed by collateral or not. 

From the lender’s point of view, a secured loan is one where collateral has been put up, meaning the loan is “secured” by the collateral.

The Difference Between Secured and Unsecured Small Business Loans

This means the lender is guaranteed of repayment, even if the borrower defaults on the loan. It reduces the risk from the lender’s point of view, as the debt is secured by an asset. By contrast, unsecured loans, including unsecured business loans, do not require collateral. 

Business loans without collateral are riskier for lenders, and more advantageous for borrowers. There is less of a guarantee that the lender will get their money back if the borrower defaults. Since there is no specific asset or collateral guarantee, the loan or debt is said to be unsecured.

When it comes to small business funding, most business owners prefer unsecured business funding and unsecured small business loans.

While there are different pros and cons associated with both secured and unsecured small business loans, as we’ll explore in detail below, the bottom line is that unsecured small business loans and unsecured business funding present fewer risks for business owners. 

Since so many small businesses are high-risk ventures to begin with, and many fail (over half in the first 5 years), reducing the risk of the unknown future performance of the business potentially costing you your valuable assets and collateral just makes sense.

It’s also worth noting that not every lender provides both secured and unsecured business lending. Banks and traditional financial institutions, for example, often provide secured lending only, or maintain extremely strict requirements to qualify for unsecured business funding.

Alternative, non-bank lenders are often the best choice for small businesses to obtain unsecured small business loans and other unsecured business funding. 

They typically have more accessible requirements, offer loans faster and more easily, and have superior customer service, focused on serving the small business funding needs of small business owners first and foremost

The Advantages of Secured Business Loans

Secured business loans, and secured funding products in general, are less risky for lenders. As a result, they often come with lower interest rates for borrowers. 

This means borrowers who qualify for a secured loan or secured funding product will pay less as a cost of borrowing. For longer-term loans, this can make a big difference in the amount you pay in interest expense on the loan. 

This is typically the key benefit of secured business loans, and often one of the only benefits cited in terms of the borrower’s point of view.

The Disadvantages of Secured Business Loans

In terms of disadvantages, secured business loans offer many potential pitfalls for borrowers.

In brief:

The Advantages of Unsecured Business Loans (Business Loans Without Collateral)

By contrast, there are numerous advantages to unsecured business funding products, such as business loans without collateral (unsecured business loans), merchant cash advances, and similar options.

The Advantages of Unsecured Business Loans (Business Loans Without Collateral)

These include:

The Advantages of Unsecured Business Loans (Business Loans Without Collateral)

The only real drawback to unsecured business funding is that the interest rates tend to be somewhat higher than on secured business funding. As there is a higher level of risk for the lender, naturally, there has to be a higher level of reward, in the form of a higher interest rate. 

However, for many small business owners, the higher interest rate on an unsecured small business loan is a small price to pay to save thousands to millions in lost collateral if the business takes a turn for the worst during the life of the loan.

Paying an extra $500 over the life of a loan of $10,000, for example, is far preferable to most business owners than risking $30,000-$50,000 in property, vehicles, equipment, or other assets should the business take a downturn and the loan default. 

A slightly higher cost of borrowing for the peace of mind knowing your assets won’t be seized is well worth it in the eyes of many small businesses in need of small business funding.

Unsecured Small Business Loans and Small Business Funding Options from BizFly Funding

BizFly Funding is one of the premiere non-bank alternative lenders in the US, focusing exclusively on providing small business funding solutions. 

With a full range of fast small business funding options, including unsecured small business loans, BizFly Funding can get you the money you need for your business. 

Pre-approval is fast and easy, with a simple online application process. Funds can be released in as little as 1 business day. 

Get the money you need to grow your business and succeed. Visit https://bizflyfunding.com for more information or to apply today!

Frequently Asked Questions about Secured and Unsecured Business Loans

Business loans, like many kinds of small business funding, can be either secured or unsecured. 

The options, availability, and terms for both of these kinds of loans will vary from lender to lender. 

In simple terms, secured small business loans require collateral in order to obtain the loan, whereas unsecured small business loans don’t require collateral.

Business loans and personal credit don’t typically interact unless you have a sole proprietorship or are a single-owner LLC. 

However, in many cases, entrepreneurs may draw on their personal assets and personal credit in order to fund their business activities. In these cases, your business credit score and personal credit score can become a bit more intertwined.

In general terms, however, an established business has its own credit score, separate and apart from a personal credit score.

Business loans can be based on personal credit scores if they are used for a sole proprietorship or single-owner LLC, or where an owner loans or funds their business activities through personal funds.

It’s very easy to obtain an unsecured small business loan from a non-bank alternative lender like BizFly Funding. 

Credit score requirements are relatively low, as are time-in-business and revenue requirements. 

Business loans without collateral can provide funds in as little as 1 business day, and in amounts as high as $1 million USD. 

BizFly Funding has an online application and approval process that can get you the small business funding you need quickly and easily.

Personal credit score can affect business credit in certain types of business setups and organizations – most usually sole proprietorship’s. 

If you are using your personal credit and personal assets for a secured loan, for example, then a personal credit score comes into play. 

Otherwise, the business has its own credit score which serves as the basis for small business funding.

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