Seeking unsecured business funding can be a great idea. However, depending on your current status, it might not be the best strategy long-term for your business. Your best approach to not end in a bad position is knowing how unsecured business loans differ from secured ones, and what the advantages and disadvantages of getting one are.

The unsecured business loan

An unsecured business loan by Lending Valley is a loan that is not secured by any type of collateral. While you are still obligated to pay what you owe on time, failing to do so won’t lead to the lender taking away your car or house (collateral). The term “unsecured” refers to the lender, rather than the borrower, because they are the ones that lack security in this deal.

The pros

With an unsecured loan, you are free to take a loan without having to worry about collateral, as mentioned. Knowing that you are not running the risk of losing your house where you and your family live can be a huge weight off your chest.

The cons

The lender needs some type of guarantee they can make a profit off the loan transaction so interest rates tend to be much higher for unsecured loans.

The secured loan

This type of loan is the opposite of an unsecured loan. You have to put down collateral in order to get it. However, it does come with certain benefits to the borrower.

Pros

You get lower interest rates.

You can get loans that your credit score might not have otherwise qualified you for

Cons

You can lose your house, car, business assets or anything you put down as collateral

There are clear differences between the two, and most times you will probably benefit more from the unsecured business loan simply because there’s no risk of losing collateral. However that doesn’t mean that you can’t be touched if you don’t repay your debt.

In unsecured loan situations, lenders have freedom to pursue any asset you own to recover their investment. There’s a difference between pursuing and actually getting. That said, “unsecured” doesn’t automatically translate into “the bank can take whatever it wants later.”

Before you make a decision regarding what type of loan to pursue it’s always best to evaluate all options. Maybe you can do more work with a line of credit instead, or maybe a merchant cash advance will do the trick even better. Explore all your options before deciding. This way you won’t regret your decision later down the road.

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