Secured and Unsecured Loans

Unsecured business loans are a type of loan that doesn’t require the loan to be secured with an asset like property or a vehicle. With secured business loans, the lender has the legal right to repossess the security asset if the borrower does not repay the loan amount. For this reason, an unsecured business loan is considered to be riskier from the lender’s point of view. This extra level of risk is factored into the interest rate.

If you have no assets to offer as security, or you’d rather not offer particular assets (such as residential property), unsecured business loans may be appropriate. However, if you’re looking for a lower interest rate, a secured loan will generally be the cheaper option.

We work with many large and small businesses with a less than perfect credit rating where bad credit business loans are offered. We specialise in finding business finance solutions for businesses where others can’t, so a bad credit score is certainly not a barrier. Creating the right finance strategy can help get your business’s financial health back on track.

Our business finance solutions range in size from small business loans right up to $50M. The amount you are approved for will depend on the purpose of the loan and serviceability. We help structure your business loans so your borrowing power is maximised, but affordability is maintained.

The fundamental difference between a secured and unsecured loan revolves around the need for collateral. A secured loan refers to the loan having security like property or inventory, meaning if the loan goes into default, then the lender may use these assets to cover the debt. In contrast, unsecured loans don’t require tangible security but instead rely on director’s guarantees and a guarantee from the business.

For a secured loan you might need to offer tangible assets such as real estate, equipment, or balance sheet assets like your accounts receivable. These assets will typically have a value that’s equal to or greater than the loan.

If you default on a secured loan a lender will typically try and work with you first to try and get your loan back on track but late or missed repayments can be reported to credit agencies. This will negatively impact your credit file and lower your credit score. If your loan continues to be in default the lender can rely on the security to recover the loan. In the instance of a vehicle or machinery asset this could mean the asset is repossessed, where property is involved lender’s can make an application to the courts to use the property to recover their loan funds.

Unsecured loans are typically assessed by a read only view of business bank account statements. Technology exists that determines the revenue through a bank account, the expenses that are being charged and the average cash balance. Red flags can be direct debit dishonours or a credit score that’s deemed too low. However, if your credit score is in line with lender policy and you have no defaults an approval up to 1.5X your monthly revenue can generally be achieved.

Yes, as a general rule a secured loan usually comes with lower interest rates due to the lowered risk associated with collateral. Conversely, unsecured loans, which carry a higher risk, tend to have higher interest rates. However, some unsecured loans offered by banks can have lower interest rates than are offered by invoice finance providers or private lenders.

Different unsecured business loan lenders have different lending limits based on credit score and their own profiles. At many unsecured business loan lenders, directors who are not property owners might only be able to borrow $150,000 whereas other lenders are more interested in the business and can provide unsecured loans on a case by case basis up to as high as $4M.

Secured and unsecured loan approvals from a bank will typically require an assessment of business financials, an understanding of a directors assets and liabilities and in the case of a secured loan, a valuation over the asset offered as security. Fintech, or unsecured lenders will, on the other hand, assess and approve an unsecured loan based on a read only assessment of business bank accounts. This makes the approval process with an unsecured lender far faster than the experience of a bank.

When deciding between secured loans and unsecured loans you should consider your borrowing needs, loan purpose, repayment time frame, and ability to offer security. Secured loans usually have lower rates which makes them appealing for longer term debt but the speed of application to settlement that an unsecured loan can provide makes them appealing for short term loans.

Applying for an unsecured loan or secured loans with darkhorsefinancial.com.au takes only a few minutes. Leave your details on line and an expert will get in touch to help you with the best lender and loan selection for your circumstances.

At Dark Horse Financial, understanding your needs with unsecured and secured loans, managing different banking relationships, and finding solutions is what we do best. Get a quote now!