Secured or Unsecured Business Loan – Which One Suits Your Company?
When choosing a business loan, the question is not only about the loan amount or repayment period. One important decision is whether to apply for a secured or unsecured business loan. Both options have their own advantages and limitations. The choice also depends on your company’s financial situation, growth plans, and risk tolerance.
Unsecured Business Loan
An unsecured business loan does not require collateral, such as property or vehicles. The decision to grant the loan is usually based on the company’s creditworthiness, payment history, and financial indicators.
An unsecured loan can be a good solution when the loan amount does not need to be very high and the loan is needed for a short period. Unsecured loans are fast and flexible, but often more expensive because the lender’s risk is higher.
Advantages:
- No need to pledge assets or assess their value.
- Suitable for short-term working capital needs or unexpected investments.
Disadvantages:
- Often higher interest rates due to greater risk for the lender.
- Loan amounts may be smaller than with a secured loan.
When applying for an unsecured loan, it is always important to review the loan terms, total costs, and compare offers from different lenders.
Secured Business Loan
A secured business loan is backed by collateral or a guarantee. Collateral can include company or guarantor assets, covering part of the loan amount.
Advantages:
- Lower interest rates because the collateral reduces the lender’s risk.
- Possibility of larger loan amounts and longer repayment periods.
Disadvantages:
- Risk of collateral realization: if the loan is not repaid, the asset may be sold to cover the debt.
The application process for a secured business loan is usually slightly longer and more complex than for an unsecured loan.
Konkretia Rahoitus identifies the best loan options for your company, whether secured or unsecured, through competitive offers and negotiations, handling the entire application process and paperwork for you.
Types of Collateral and Their Effect on Interest Rates
From the lender’s perspective, collateral provides security for repayment. The more liquid and valuable the collateral, the lower the lender’s risk and usually the interest rate.
Real security
Collateral can include real estate, plots of land, machinery, vehicles, equipment, investments, or deposits.
- Residential or commercial property: Highly valued and easily realizable collateral with high value. Interest rates are usually lowest when property is used as collateral.
- Land: Land value varies by location, which also affects the interest rate. Rates are usually lower than for unsecured loans.
- Machinery and equipment: Depreciate faster than property or land, so interest rates may be slightly higher.
- Investments: Stocks and funds vary in value but are also easily liquidated. Depending on the investment portfolio, interest rates can be low or high.
Guarantee
A guarantor agrees to repay the loan if the borrowing company cannot. Guarantees can be provided by individuals, the entrepreneur, or institutions offering loan guarantees.
- Personal guarantee: If the entrepreneur or another individual provides the guarantee, it is considered a personal guarantee. The guarantor’s personal assets back the loan. This reduces lender risk, leading to lower interest, though usually higher than with tangible collateral.
- Institutional guarantee: A loan can be guaranteed, for example, by the state through Finnvera, significantly reducing lender risk and often lowering interest rates. However, the guarantor charges a fee that must be considered in the total loan cost.
Which Loan is Right for Your Company?
If your company needs funding quickly and the amount required is moderate, an unsecured loan may be the fastest solution, especially if your company’s credit history and financial situation are sound. If you are planning a larger investment and can use assets as collateral, a secured loan often offers a lower interest rate and more flexible terms.
Konkretia Rahoitus reviews all loan types with you and helps you choose the best option.
We clearly explain the costs and terms of each loan, manage the full application process, and provide guidance regarding collateral. You receive reliable, well-negotiated loan options and support for decisions that promote your company’s success.
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