Differences between secured and unsecured business finance

Many will say that small businesses across the UK keep the economy in order.

The usual boundaries of a small to medium sized enterprises (SMEs) is one with fewer than 250 employees. In 2017 it was reported that there were 5.7 million SME’s trading which accounted for 99% of all businesses!

Many businesses run day to day and battle between money coming in and going out, expansion and growth is a mere dream as keeping heads above the water takes all and any spare time. An amazing and yet sobering fact shows that 80% of businesses will fail within the first two years of trading.

Some businesses obviously succeed and grow from small to medium sized and beyond. Some businesses will be sold or merge and others will opt for crowdfunding or seek angel / family investors in order to grow.

The other option small businesses have is of course loans of which can be both secured and unsecured. This route will usually have a number of pros and cons and will of course require of any business to study the finer details and terms and conditions prior to opting for any loans.

The below are some key pointers all of which are our opinion and should not be used as part of any decision on taking loans for your business – please do your own due diligence:

What is a secured loan?

It literally describes itself in that you will be required to put your owned security against the loan you take, ie your property will most likely be what a bank will request. An unsecured business loan will then be allowed to be given to you in order to inject in to your business and take it forwards.

If you have secure plans for your business and the loan you have taken will get your business to the level you need and you are able to pay back the loan under the agreement you sign for then this option is great. It will usually allow you to borrow bigger amounts (depending on the value of the asset you leave as security) and will give you a longer period to pay back and likely also more favourable interest rates.

Of course there is always a down side and this is the risk part, if you fail to be able to pay back your loan then what you have left as security, ie your property/home could very well be lost to the bank.

What is an unsecured loan?

So we now go on to the opposite in unsecured loans. Slightly more straight forward and faster in that no assets / property is required to be put as security against the loan. The risk is less to the one that takes the loan, though the amounts that can be borrowed will typically be not as much as what you could obtain with secured loans.

Ideal for small businesses looking for a small investment during quieter times or for an expansion of some kind such as new tools / machinery / premises etc. Business owners can opt between cash flow loans or working capital loans. These quick cash injections can request daily repayments and offer 6-9 month payback period such as merchant cash advance options.

The bank will usually investigate your current business status and request of you certain guaranteed information such as annual turnover or the amount of time which you have been trading.

Of course, these type of loans will not grow on trees and though quick to be given, it might be harder to obtain them as requirements are somewhat higher for unsecured loans.

Biggest advice of all is to always take your time when looking at and opting for a loan – Research well and compare varied providers. Read the small print and realise well the risks.

Regardless of whether you opt for unsecured or secured small business loans, when utilised correctly, the finance can be leveraged to help your business’s growth tremendously. Whether it’s through expanding the workforce, investing in new equipment, or the employment of system technologies to streamline accounts and company data, the benefits a well used loan can bring to your enterprise are endless.


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