Secured Business Loans: 5 Drawbacks To Know About Traditional Bank Loans

If you’re considering a secured business loan, it’s important to weigh the positives and negatives before you make a decision.

First, let’s get into the primary differences of the two loan types…

What is a Secured Business Loan?

A secured business loan is business financing that’s “secured” by some type of collateral. This collateral becomes a secured debt owed to the creditor who gives the loan.

What is an Unsecured Business Loan?

An unsecured business loan is a funding solution that requires no collateral or personal business assets. If you default on the loan, the lender can’t automatically seize your property. 

5 Possible Drawbacks to a Secured Loan for Your Business

Many business owners opt for an unsecured business loan instead of a secured loan. Even though they could get either, the drawbacks sometimes outweigh the benefits. These drawbacks include:

1. You may have to pay an extra fee to have your collateral evaluated, which would drive up your total cost of borrowing.

2. Banks and credit unions often under-value your collateral. This means that you may have to pledge more assets than you would with an unsecured business loan.

3. The approval process could be lengthy, often taking months to be processed. And often, without any guarantee of approval.

4. Along with taking longer, the amount of paperwork for a secured business loan is more significant than an unsecured loan. Many small and mid-sized business owners simply can’t afford the time needed to pull together the comprehensive paperwork needed to process a secured business loan.

5. If you don’t have enough business assets required (or, more likely, if your assets are under-valued), you may be required to pledge personal assets such as your home and car, which can be scary for small business owners.

We’re not saying that secured business loans are dangerous and should be avoided. Often times, the terms could be far better than an unsecured. However, if you feel that there’s a chance you may not be approved from a bank or credit unit, and therefore are hesitant to invest the time, an unsecured business loan could be a great alternative option for you.

Learn More

If you are one of those businesses unsure of whether you would be able to get approval from a bank or credit union, Mulligan Funding would love to speak with you. We work with you to review your situation and offer a long-term lending plan to help set you and your business up for success. Call Mulligan Funding at 855-326-3564 to discuss your financing options today!

The information shared is intended to be used for informational purposes only and you should independently research and verify.

Note: Prior to January 23, 2020, Mulligan Funding operated solely as a direct lender, originating all of its own loans and Merchant Cash Advance contracts. From that date onwards, the majority of funding offered by Mulligan Funding will be by Loans originated by FinWise Bank, a Utah-chartered Bank, pursuant to a Loan Program conducted jointly by Mulligan Funding and FinWise Bank.