Secured Business Loans: What Are They, and Should You Get One?
Secured business loans require you to have collateral, such as a large business or personal asset. Here are the pros and cons of a secured business loan.
By: Sean Peek, CO- Contributor
For many entrepreneurs, a small business loan is the best way to finance a new business or grow an existing organization. However, obtaining a business loan can be difficult for startups and small companies because the risk to financial institutions is greater than lending to larger businesses.
If you've begun to explore commercial https://paydayloansohio.net/cities/ashtabula/ lending options, you may have noticed some banks offer “secured” loans with more attractive interest rates and payment terms.
To help you determine if you're eligible for a secured business loan - and whether it's the right choice for your financial situation - here's what you need to know.
Secured vs. unsecured business loans
Any commercial lender takes on a significant amount of risk in offering a loan because there's always the possibility that a business will fail and be unable to make payments. The main difference between a secured and an unsecured loan is the way a lender mitigates that risk.
A secured business loan requires a specific piece of collateral, such as a business vehicle or commercial property, which the lender can claim if you fail to repay your loan. These types of loans are often easier to obtain and may come with lower interest rates because the lender has a guaranteed way to get their money back. They can recoup their losses by selling your collateral in the event of a default.
Unsecured loans, on the other hand, are not attached to any collateral. Personal loans, student loans and credit cards are common examples of unsecured loans. These types of loans often come with high interest rates and stringent approval requirements to ensure the lender gets their money back.