The main difference between an unsecured and a secured loan is the collateral required. Of course, that difference affects other things about the loan as well, including terms and interest rates.
Secured Loans often come from banks or traditional lending sources. They are the most common type of financial borrowing available. Secured loans, backed by an asset such as a house or piece of property, give the lender the ability to repossess collateral should the borrower default on their loan. The type of collateral required can vary and the lender and borrower must come to agreeable terms in order to move forward with the lending process.
Loan processes vary between different secured lending services. The standard procedure usually involves the loan amount, asset negotiation and loan repayment terms. Repayment terms are often much more generous in both time and interest rate because the loan is backed by collateral in the event of default. Secured loans, backed by an asset such as a house or piece of property, give the lender the ability to repossess collateral should the borrower default on their loan.
Unsecured loans are drastically different. They don’t involve collateral, have different application requirements, and sometimes don’t even involve a bank. Since merchant business lending is not centered on collateral or personal assets, the lender uses factors of your business to determine loan worthiness. Some factors that can help with acquiring an unsecured loan might include your credit history, sales records, business growth, and projected financial income.
Unsecured business loans can come in the form of credit cards, personal loans, corporate bonds, and merchant cash advance financing. Interest rates tend to be higher and come with a shorter repayment period, which results in a lower amount paid towards interest.