Why do I need to understand the difference?
Inevitably, all small businesses will encounter the necessity to borrow money. Therefore, being familiar with the various forms of small business loans helps owners seek the right funding for their unique business needs. When small business owners look at applying for a loan, they are likely to encounter either secured or unsecured loans, each with its own unique advantages and disadvantages. Borrowing money is an important step in the growth and maintenance for any business, therefore it’s important to understand the differences between secured and unsecured lending.
Secured Loans
Secured loans are a more traditional form of lending, whereby loans are backed by collateral in the form of property, vehicles or various other forms of owned assets. Due to this collateral, lenders often offer secured loans at lower interests rates and over more flexible terms. However, a potential risk emerges if the borrower defaults on the loan, as the lender has the right to seize the collateral that was secured against the loan.
Benefits of Secured Loans
Given that secured loans give lenders the right to the collateral secured against the loan, there is less risk on the side of the lender. Therefore, secured loans are often offered at lower interest rates, and over longer repayment terms. Secured loans also allow access to borrowing larger sums of money, and many lenders require collateral for loans over $150K.
Unsecured Loans
Unsecured loans on the other hand do not require collateral to secure the loan. Instead, these loans are based upon the credit score, cash flow and general financial stability of the borrower. Unsecured loans are often offered for smaller loans (<$250K), and in circumstances where small businesses cannot wait for loans to be approved via the traditional application process.
Benefits of Unsecured Loans
Therefore, lenders may offer unsecured loans at higher interest rates and shorter repayment terms. Unsecured loans may be more attractive to borrowers who do not have or may be unwilling to put up the necessary collateral to secure a traditional loan. Unsecured loans may be used by businesses that are looking for quick access to capital, to upgrade equipment, order stock or for general working capital to adapt to seasonal fluctuations in the business cycle. These may be in the form of cash flow loans, working capital loans or fast business loans.
How do I know which type of loan is right for me?
Borrowing money is a necessary step in the lifecycle of any small business, and ultimately the choice between different types of loans is dependent upon the unique needs of each business. OnDeck is a completely unsecured lender, meaning that borrowers will never be required to put forth capital to secure their loans. This, combined with the development of unique Koala score technology, allows small businesses access to funding in as little as 2 hours via lightning loans, so that small businesses get the funding they need, when they need it.
Secured Vs Unsecured Loans FAQ
What do I actually need to apply for an unsecured loan?
At OnDeck, all we require is a directors guarantee, and 6 months of recent bank statements. To learn more about small business loan requirements, click here.
How much can I borrow with an unsecured loan?
With an Ondeck loan, you can borrow up to $250,000 unsecured. To learn more about how you can access an unsecured loan, click here.
Prepared by OnDeck Capital Australia Pty Ltd ABN 28 603 753 215 (“OnDeck”) for general information purposes only. Content may belong to or have originated from third parties and OnDeck takes no responsibility for the accuracy, validity, reliability or completeness of any information. Information current as at May 2023. You should not rely upon the material or information as a basis for making any business, financial or any other decisions. Loans issued in Australia are subject to the terms of a loan agreement issued by OnDeck. Loans are subject to lender approval. OnDeck® is a Registered Trademark. All rights reserved.
