Unsecured Vs Secured Lending
Unsecured loans can be faster to complete because there is less paperwork and assessments to carry out during the application process as the loan is not secured on assets or property, your loan application is assessed based on credit worthiness and the business owner(s) personal credit score.
Secured loans use property or assets as security and the amount you can borrow is limited by the amount of equity available, also known as LTV (loan to value). LTV can range from 50-80% less any money currently owed such as mortgages or other charges (loans secured on the property).
Some companies may be best suited to asset finance or secured finance if they have property with high amounts of equity available and an average credit score.
On the other hand, if a company only has access to low equity assets or property, but a good credit score then unsecured lending may be the best option for them.
Deciding on the best business loan for your company
Things to consider when deciding which business loan is the best fit for you and your business are
- Rates/Interest – How much will the finance facility cost you in full
- Fees – What fees are involved
- Loan amounts – How much funding does your business need
- Repayment schedules – Short term business loans or long terms
- Impact on financial health – Will the loan have a positive impact on long term health
There are a wide range of lenders offering business loans and knowing which lender to approach is the most important step in acquiring business finance.
- Do your research – what lenders specialise in your type of business and finance requirements
- Do not go “application mad” and apply with every lender you can find as this can impact your credit score
- Read all documentation thoroughly to make sure you are making informed decisions
- Sole trader? What is your personal credit score? Many lenders look at this when deciding on applications
- Seek expert advice on your options, such as using a finance broker https://www.rlacapital.co.uk/blog/advantages-of-using-a-finance-broker
- Check loan criteria to make sure the lender meets your requirements
- Loan amounts
- Annual revenue
- Outstanding credit agreements
- Credit terms
- Secured or Unsecured