In this article, we are going to discuss about secured and unsecured loans.
The small businesses are always defending their money, they must do miracles with what little they have, therefore many of them are necessary to resort to credit to realize all the ideas they come to mind, but the options of getting one are thousands and varied, causing a few to take advantage of this.
For example, it is increasingly common to hear news where a small business fell into a credit scam that could not pay and then lost everything. Drop-by-drop lenders are very common in Latin America as they offer an easy loan, without collateral or guarantee but with a very high interest that must be paid in less than a month, which makes them unpayable.
This type of scams have made thousands of small companies distrust (with good reason) because every time they see an online loan without endorsement or without guarantee, they do not give credibility because it is not financial institutions that grant it, so they doubt that it is easy to obtain and it is not a scam like the one we talked about a paragraph ago.
But in reality, the types of loans that do not require an endorsement or guarantee are as true as this text that you are reading. To do this, we must explain the secured and unsecured credits, have you heard of them? Well, each one has its advantages and disadvantages, so we will talk about them below.
A guaranteed loan will request some good to grant the loan , this as a guarantee of payment, since usually this type of loans are high, very hand in hand with what is left as a pledge. This loan option is traditionally available from banks and is also known as an “asset-backed loan.”
Similar to mortgaging a house to raise equity, you are essentially putting your property on the line to finance your business. It means that if you take out secured loans, you could lose your assets if you can’t keep up with your payments.
However, not everything is bad, because as we already mentioned, this type of credit offers a high amount of money, they also offer long-term payment options, so that you can cover the loan without having to sell your property.
Also, interest rates are low because the financial institution will receive a constant amount from time to time over a long period of time. Finally, a secured loan can “free you” from checking your credit history, because what you leave as collateral will speak for itself.
An unsecured business loan does not require property to secure the loan amount. Unsecured loans are great for small business owners with good personal credit, and the application process is quick and easy.
But for this reason, lower amounts are offered than in the guaranteed one, because there is nothing to back them up, therefore they are considered low risk and without complications. Instead, the lender will evaluate according to the credit score and business plan of the companies. In some cases, you may be required to have a guarantee or endorsement.
Also, while traditional loans require lengthy paperwork and a complex application process, unsecured loans can be a convenient option for small businesses. The main difference is that lenders tend to provide loans to cover an immediate expense.
Finally, unsecured loans give small businesses the opportunity to access funds without putting their personal assets at risk. Small business owners can also borrow smaller amounts without the rigorous application process that applies to traditional loans.