As you explore various business loan options, naturally you’ll focus on issues such as the cost of money, repayment terms, and so on. These are important factors, and need to be part of your overall evaluation and decision-making.
However, there’s another that is critically important, and therefore needs to be front and center as you weigh your options: whether the loan is secured or unsecured.
Secured vs. Unsecured Loans
A secured loan is when you pledge an asset — or often, multiple assets — as collateral for a loan. This means that you are unable to liquidate that asset until the loan is repaid in full. Also the asset(s) then becomes a secured debt for the lender (e.g. bank). If you default on the loan, the lender takes ownership of the asset to cover some or all of the amount owing.
An unsecured loan doesn’t require collateral to be assigned to secure the loan. As you might expect, generally speaking secured loans – which are the only kind of loans that banks provide — are usually offered at a more favorable rate than unsecured loans because the loan risk is higher. Unsecured funding can offer you much more freedom and less risk. Below, we highlight the key reasons why:
- Rapid Access to Desired Funding
As mentioned, banks only provide secure loans. And if you’ve applied for a bank loan in the past or know someone who has, then you’re aware that it’s a very long process – one that can easily last for several months. For most borrowers, this excessive waiting period is just not acceptable. The expense that they need to cover won’t wait, or the opportunity they need to seize won’t be available.
Unsecured loan funding, however, are a completely different story. Your online application is reviewed within 48 hours, and upon approval the funding is in your account within a matter of days.
- Much Easier to Get
Even if you can wait months for a secured bank loan to materialize, then there’s another problem on the horizon, and this one is much bigger: getting a bank loan in the first place is harder than it has ever been. That’s because banks are taking on very little risk, and they’re typically only approving loans for borrowers with perfect (or near perfect) credit scores, and at least two years of credit history.
Unsecured business loans, again, are a much different story. Bad credit will not necessarily disqualify an application, and usually only 2-3 months of credit history is required. Even borrowers with a bankruptcy on their file won’t be denied, provided that it has been legally discharged by the time they submit their application.
- No Nasty Collateral Evaluation Surprises
Let’s say you need to pledge $60,000 worth of assets as collateral for a secured loan. Your $40,000 vehicle plus $20,000 piece of equipment should take care of that, right? Wrong! Banks are known for often times under-valuing collateral, and may deem that your assets are only worth $40,000. That means you need to come up with another $20,000 – which, again, is $20,000 according to the bank; not according to you.
However, ws mentioned above, unsecured loans don’t require collateral of any kind.
The Bottom Line
As you can see, the differences between a secured business loan and an unsecured business loan are about much more than the interest rate – because the latter gives you far more freedom and less risk!
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.