Are you thinking of obtaining a commercial loan? You may wonder if it is more convenient for you to apply for a secured or an unsecured loan. What is the difference between them? The key difference is in the presence of guarantee or guarantee.
Here you will learn how to present a guarantee, along with other factors, can have a significant impact on the terms and conditions of your loan.
Differences between secured and unsecured commercial loans
Commercial loans secured (with collateral):
- This type of loan requires the borrower to present some of his own assets, called collateral , as collateral in case he fails to pay the loan. In this way, the lender assumes fewer risks when advancing the money. The guarantee may include personal assets or assets that are owned by the company. Some examples of collateral are a savings account, a vehicle, machinery, a house, or other real estate property. Most new or very small businesses may not have important assets to present as collateral to meet the requirements of this type of loan.
- Normally, secured or secured loans have a lower interest rate compared to unsecured commercial loans, since the lender is taking fewer risks. Similarly, loan amounts may be higher.
- In general, the repayment term is longer than in unsecured commercial loans.
- In case of default of the loan (that is, if you do not repay it as agreed) the lender can legally seize the assets used as collateral. Since the lender can confiscate your assets or initiate a foreclosure procedure, your credit report may show a series of negative entries.
- If the assets sold by the lender do not cover the loan amount, you will still have to pay the loan balance.
Commercial unsecured loans (without collateral):
- They do not require the borrower to present collateral to guarantee the loan. Therefore, your lender cannot seize your assets if you do not make the loan payments. However, some lenders that offer unsecured or unsecured business loans require borrowers to sign a personal guarantee agreement. If your company cannot pay the loan, the person who signs the guarantee agrees to pay the balance.
- To qualify for an unsecured business loan, most lenders require you to have a good credit history and a reliable source of income.
- The amount of money you can borrow may be less, because you do not offer a guarantee to guarantee the loan. In addition, the interest rate charged by the lender is generally higher than what you would pay for a secured loan. However, since the loan is not insured, you usually pay the debt faster.
- Commercial unsecured loans can be processed in a matter of days compared to secured loans, which take much longer.
Secured commercial loans Unsecured commercial loans
Is it better to get a secured business loan or an unsecured one?
When weighing the pros and cons of each type of loan, consider the specific financial needs of your business. The biggest risk a borrower can take is to present a guarantee to secure a loan. In doing so, you run the risk of losing your assets or those of your company if you cannot pay the loan. But from the lender’s point of view, you are more solvent because they can sell your assets.
In addition to having to provide collateral, there are other reasons why obtaining a secured business loan can be risky. A lower interest rate and being able to borrow more money is attractive, but incurring payments towards a loan for longer means that you could end up paying more in the long term. In addition, repaying the loan for a longer period can commit money that you could otherwise invest in your business.
Most business owners are reluctant, and rightly so, to offer collateral when borrowing money. They prefer to obtain unsecured funds through an unsecured commercial loan or a credit card . On average, they can pay a commercial loan in a period of 24 and 60 months or pay a credit card in each statement cycle. Although borrowers may have to pay a higher interest rate, they return the loan more quickly and do not carry the debt for so long.
The perfect solution would be to find a lender that does not require collateral and charges reasonable interest rates, right? Keep reading!
Is there any way to protect your assets and also get a reasonable interest rate?
Clestoros Financial: unsecured commercial loans at reasonable rates
You will be surprised to know that Clestoros Financial does not request collateral from its borrowers . It is one more way to comply with our motto: “We do not close the doors to any business”. We are committed to giving easier access to capital to small businesses that do not have assets to support a loan.
For that reason, our interest rates may be slightly higher compared to traditional loans, but they are comparable to the range of interest you would pay with a credit card. However, there are a number of advantages that place us in holm of both traditional loans and credit cards:
- Possibility of reducing your interest rate: after 9 months of making payments on time, you can qualify for a better interest rate.
- Fewer requirements: In addition to not asking for collateral, we have a considerably lower amount of requirements than other lenders.
- Fast processing: once you apply for a loan, you will receive an immediate quote. You should not wait days or weeks as you would when applying for a loan with a traditional lender. Once we approve your loan, you will receive the funds directly into your checking account within 2 to 10 days. In addition, you can complete the entire online application process from the comfort of your home or workplace without visiting a branch.
- No SSN is required: you can qualify for a commercial loan even if you only have an ITIN and do not have a Social Security Number.
- Few restrictions on how you use the funds: the restrictions on the use of the loan are minimal so that you can meet any of your business needs.
- You can pay the loan early: we do not charge fines for prepayment if you decide to pay off the loan in full before the end of the term.
- No credit history is required: we understand that many of our borrowers have not established a credit history because they have not been in the country for a long time. While other lenders reject them, we open the doors.
- Bilingual customer service: our loan representatives speak English and Spanish and are trained to offer you the best financing options. They will make sure to find for you the perfect financing solution that can help you meet your goals without forcing your finances because of excessive monthly payments or too long a period of time.
- Exclusive resources and benefits: As a member of Clestoros, you will have exclusive access to educational resources to improve your finances. You will receive other benefits such as discount coupons and free webinars.
Why not apply for a business loan and start reaping the numerous rewards of working with us? Submitting your application will not affect your credit. When applying for your loan with Clestoros Financial , you will have taken the first step towards the long-term financial success of your company.