Secured vs. Unsecured Business Loan: What’s the Difference?

Entrepreneurs have a range of financing options to choose from when it comes to funding their business. Most of these financial products are some type of loan and the easiest way to distinguish them is to determine whether they are secured or unsecured.

Both secured and unsecured business loans in Singapore have advantages. We discuss them below.

The Differences Between Secured and Unsecured Business Loans

A secured business loan is a loan backed by some form of collateral. The collateral acts as a security for lenders to make sure borrowers pay the loan back. In the event that you fail to repay the loan, the lender has the right to take the collateral.

Some of the most common collaterals for secured business loans are:

• Financial properties like stocks and bonds
• Commercial mortgage
• Cash in the bank

Unsecured business loans, on the other hand, is a loan that is awarded based only on your company’s creditworthiness. When you have a good credit score or can show that your business yields ideal income, certain lenders will conclude that letting you borrow money for business doesn’t pose a significant risk of loss.

Examples of unsecured business loans are:

• Working capital finance
• Merchant cash advances
• Credit loans

The Advantages of Secured Loans

Lenders face lower risks in secured loans since the collateral ensures repayment in case a borrower defaults. As such, they pass on this benefit by offering:

• Lower interest rates
• Easier requirements and application
• Larger borrowing amount
• Great flexibility on collateral

The Advantages of Unsecured Loans

While unsecured loans can be risky for lenders, they combat it with stringent application processes and thorough research on borrowers. Despite this, unsecured loans provide plenty of benefits for borrowing entrepreneurs, including:

• No risk of losing collateral
• Shorter loan application process
• Faster loan approval

Which One is Right for Your Business?

Now that you know the differences between secured and unsecured loans, you can better decide which one is right for your business.

To further help you out, these are the questions you have to ask yourself before deciding:

1. What do you need the loan for?

Before borrowing, consider what your goals are for doing so. Secured loans are better for bigger loans, which mean more significant business goals. But if you simply need a boost in cash flow or to purchase assets, unsecured loans are more ideal.

1. What is your timeframe to achieve this goal?

Think about whether you want the fastest route to get financing or if you’re willing and have the capacity to wait longer for a bigger loan. The former will point you in the direction of an unsecured loan and the latter a secured loan.

1. Does your business have a track record that lenders can trust?

Mostly for those considering unsecured loans, you have to ensure you have the most ideal credit history to be approved. Otherwise, you may have to risk losing your assets for collateral when applying for a secured loan.

Finance Your Business Securely

Capital Funds Investment is a trusted lender for small and medium-sized businesses in Singapore. We offer both secured and unsecured loans, so you have the flexibility to choose what’s best for your business.

Apply for a business loan today.