How to Choose Between Secured and Unsecured Business Loans

Share This Post

Key Takeaways

Running and growing a business is something many Australians find fulfilling. However, doing so can require a lot of capital. From working capital requirements to investment in expansion, people and equipment, many business owners turn to commercial loans to help manage their cash flow and grow their business. 

As a business owner seeking funding, you will likely have to choose between secured and unsecured loans. These two choices have key differences that will serve different situations. Let’s discuss these differences and determine which one is better for you.

Understanding the Differences

What exactly is the difference between a secured and unsecured loan? It mostly lies in security. For lenders, security gives them a safety net that protects them in the case of default. The presence of (or lack of) security affects the terms the borrower gets. Let’s take a closer look:

Secured Business Loans

These types of loans require the borrower to provide some form of security against the loan amount. Common forms of security include:

  • Commercial property
  • Residential property
  • Business equipment or inventory  
  • Vehicles or other assets
  • Accounts Receivable

If the borrower defaults on repayments, the lender can legally take possession of the security and sell it to recover the outstanding debt. Since the lender is protected, they can provide the borrower with better overall terms. 

Unsecured Business Loans

In contrast, unsecured loans often have no associated security. Instead, lenders assess applications based on the borrower’s credit score and historical cash flow through the business bank account. Unsecured business loans are great for those who don’t have or are unwilling to use significant assets as security. They are also quicker to obtain, which is ideal for those who need funds fast.

Advantages and Disadvantages of Each Option

Both secured and unsecured business loans have their pros and cons that may suit different scenarios:

Secured Loans


  • Lower interest rates
  • Higher maximum loan amounts 
  • Longer repayment terms available


  • Risk of losing security assets
  • Slower approval and funding process
  • Less flexibility when it comes to your assets

Unsecured Loans


  • No security needed
  • Fast application and funding  
  • Retains future borrowing power


  • Higher interest rates
  • Lower maximum loan amounts
  • Shorter loan terms

How to Choose Between Secured and Unsecured Business Loans

Here are some key factors to weigh up when deciding whether a secured or unsecured loan is best:

Loan Purpose and Amount 

What exactly do you need the funds for? Secured loans can be good for larger investments like business expansion or inventory purchases. In the case of buying commercial properties and equipment, the asset being bought is generally used as the security for the loan. Meanwhile, unsecured loans can work better for smaller, short-term needs.

Available security 

Director’s property and business vehicles, plant and equipment can be used for security if available. If not available, you can get funding through an unsecured loan.

Company Life Stage  

Younger companies with just a few months of operations most probably can’t meet unsecured loan criteria. Even when they do, options with reasonable rates aren’t usually available until after 12 months of trading. Many non-bank lenders offer secured options for startups and young businesses so they can build their credit profiles. These include secured term loans, equity release, equipment finance, and private lending.

Willingness to Risk Assets

When you apply for a secured loan, there’s always a risk of losing your valuable asset. Many businesses lose the capability to repay loans due to economic and personal issues. If that happens, will your business survive the loss of your asset?

Future Borrowing Plans

Securing current debts against assets could limit your borrowing flexibility further down the line. Think about your business plans and what type of funding you will need in the future to make them happen. 

When Secured Loans Make Sense

In general, secured business loans are recommended if:

  •  You need to borrow larger amounts
  •  You require affordable, long-term financing
  •  You have significant assets to use as security 
  •  You don’t mind encumbering assets

When Unsecured Loans Are Better

An unsecured business loan makes more sense if:  

  • You’re using funds for short-term working capital
  • You have limited assets or can’t risk security  
  • You need funds immediately
  • Business financials are less-than-ideal

To Sum it Up

For many businesses, a balanced approach using both secured and unsecured financing across different stages makes the most sense. The key is choosing loan products carefully so that they’re aligned with your unique situation.

With some preparation and diligent research, you can find a loan solution that provides capital for success. Seeking advice from experienced loan experts can ensure you make the right choice.

Reach Out to Loan Experts About Secured and Unsecured Loans

Our team of experts know business loans inside out. We’ll help you find tailored solutions so that your business can achieve its goals. Whether you have significant assets or not, we can direct you to the right loan to position your business for success.

More To Explore

Financial chart drawn over hands taking notes background. Concept of statistics. Multi exposure

Lending Indicators May 2024 Report

Key Takeaways   Housing market shows overall strength despite month-to-month volatility Slight cooling in new loan commitments may reflect economic

Learn more about business financing!

drop us a line and keep in touch

Two men discuss the Types of Loans for Businesses with Bad Credit, Conceptual Photo
Scroll to Top