Not sure if a secured or unsecured business loan is more suited for your company’s needs? Find out here.
If you’ve decided to apply for financing for your business, finding the right type of loan is an important next step. There’s a range of financing options available, but two of the most common business loan types are secured and unsecured loans. Read further to see how these two loans compare and which is best for your business.
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Customizable business loans with no hidden fees.
- Min. Amount: $5,000
- Max. Amount: $500,000
- One-time fixed fee charged over the life of the loan
- Acclaimed customer service
- Requirements: $100,000+ annual revenue, 1+ years in business, 600+ personal credit score
What is the difference between secured and unsecured business loans?
The key difference between secured and unsecured business loans is the guarantee that is required — secured business loans require you to have assets, whether they be business or personal, to attach to the loan, while unsecured business loans do not.
Secured business loans are typically offered by banks and can help a business access larger amounts. This is because lenders are taking on less of a risk if they know they can recoup their losses should the loan not be repaid. Unsecured business loans tend to come with lower loan amounts and higher rates as the loan is more of a risk.
Secured and unsecured business loans you can compare
|Provider||Unsecured Loans Offered?||Secured Loans Offered?||Collateral Required||Offer Details|
|Excel Capital Management||Receivables or assets (commercial real estate, inventory or heavy equipment)||Loan options including split funding, term loans, equipment financing, invoice factoring, business lines of credit and more|
|LendingClub||UCC lien on business assets is required for loans over $100,000||Peer-to-peer lender offering small business loans up to $300,000|
|Main Street Finance Group||Assets (commercial real estate, inventory or heavy equipment)||Business financing up to $1,000,000 through merchant cash advances, long-term unsecured loans, equipment financing, and lines of credit|
|Fundbox||None||Lines of credit and invoice financing with a max draw limit of $100,000|
|National Business Capital||None||Business equipment financing and leasing services, lines of credit, and small business loans with a max financing amount of $5,000,000|
|FastPay||None||Invoice financing for digital media companies|
|PayPal Working Capital||None||Short-term loans giving e-commerce businesses up to a 25% advance on future PayPal sales or up to $97,000|
|SnapCap||None||Term loans, working capital, expansion and inventory loans with a max draw amount of $600,000|
||Term loans up to $100,000 and lines of credit with a max draw amount of $500,000|
||Lines of credit with a max draw amount of $250,000|
|Accion||Personal guarantee||Microloans for small businesses with a max amount of $250,000|
||Lines of credit and invoice financing with a max amount of $2,500,000|
||Lines of credit and business term loans with a max amount of $500,000|
||Peer-to-peer lender offering fixed-term business loans with a max amount of $500,000|
What is a personal guarantee?
A personal guarantee is a legally bound promise that the borrower will repay the loan with personal funds if the business fails. Keep in mind most business lenders require a personal guarantee to protect them against major losses if you default.
You may also often see a general lien requirement. A general lien is a lender’s right to keep your business assets in the event you’re unable to repay the loan.
What is considered a valuable asset for security?
When you’re borrowing against your assets, your loan is secured by the residual value that your assets represent. If you’re unable to repay the loan, the lender may seize your assets to cover the outstanding amount. Any of the following could be used as security:
- Personal or commercial real estate
- Business equipment
- Investment accounts
You can also borrow against the valuation of your business as a whole.
Is an unsecured or secured loan best for my business?
- You’re looking to borrow a large amount of money over $1 million.
- You have several assets you can secure the loan against.
- You are in a position to make repayments over a long period of time.
You may want to consider an unsecured business loan if:
- You have a small- to medium-sized business with few or no valuable assets.
- Your business is established and has growing monthly revenue.
- You need a quick cash injection.
- You can repay the loan over a period of one to five years.
Many lenders offer unsecured business loans, though you’ll likely need to meet stricter eligibility requirements because the lender is taking on more risks. As a minimum, you’ll generally need to be in business for at least a year and have monthly revenue of at least $10,000.
Compare top business loan providers
There isn’t one right loan solution for all businesses. By comparing your options and weighing up the pros and cons of each, you can find what’s right for your business.