Secured vs unsecured loans: what’s the difference?

Choosing the right financing option for your business can be difficult; you have to consider your assets, cash flow, time in business and business goals. Learn about secured and unsecured loans to help you decide which one suits best.

What’s the difference between secured and unsecured loans?

The main difference between a secured loan and an unsecured loan is whether the lender requires security.

A secured loan for your business requires security. This may be property, inventory, accounts receivables or other assets. If the loan can’t be met, the lender may rely upon these assets to clear the outstanding balance, interest or fees.

An unsecured loan for your business doesn’t require physical assets (such as property, vehicles or inventory) as security. Instead, your lender will often look at the strength and cash flow of your business as security.

Business loans which are unsecured are a great option for businesses who need financing without having to provide assets as security. Lenders evaluate the strength and cash flow of your business. 

What is a secured loan?

Secured loans:

• allow you to borrow against your assets, e.g. property, inventory, accounts receivables
• generally involve a longer approval process, as there’s security to consider
• may require value assessments and additional proof and documentation of assets
• commonly offer lower interest rates and higher borrowing amounts than a unsecured loan.

It’s important to remember though, that the amount a bank will loan isn’t one-to-one with an asset’s value. For example, putting forward a $50k vehicle as security won’t result in a $50k loan.