Unsecured vs secured loans: Which is best for your business?

Glenn Westoby

Friday, 10 July 2020

Whether you’re looking to grow your business with a new product, marketing campaign or office fit out, there are hundreds of financing options to consider.

To get you started, let’s explore two of the most common types of business finance—secured and unsecured loans. The difference between the two lies in whether you’re securing your loan with an asset, or leaving it unsecured at the cost of higher rates.

There are pros and cons to both types of finance, and the right one for you depends on the size of your business, how much you’re looking to borrow, whether you have access to collateral and how quickly you need cash.

The difference between secured and unsecured business loans

The main difference between secured and unsecured finance is the need for collateral. Secured loans require collateral to give lenders peace of mind that should you (touch wood) default on your loan, they’ll have a solution to recoup losses.

For example, let’s say a retail store applies for secured finance, offering their physical shop as collateral to secure the loan. If the store was to go bankrupt or be unable to repay their loan, the lender could sell the store (as a last resort) to make their money back and pay off the remaining loan balance.

Your interest rate, loan term and borrowing power will also differ depending on whether you choose a secured or unsecured loan.

If I choose secured finance, what can I use as collateral?

Both business and personal assets can be used as collateral. In some cases, businesses can secure their loan against the company itself, or other valuable assets, including equipment and real estate.

Usually, collateral takes the form of a property, whether that’s a home, investment or commercial space.

It’s also worth noting that you can ‘update’ your collateral as your business matures.

For example, a start-up might not have any business assets to work with, so they’ll secure their loan with a personal property. Once their business grows, they can refinance to release their personal property and replace it with a business asset.

Advantages of secured loans

Interest rates help lenders mitigate risk and it’s also how they make money. Therefore, if you offer collateral as security for your loan you’re seen as less of a risk and can likely score a lower interest rate.

This is provided your business is healthy and stable, proven through financials and your credit history.

With secured finance, you also have access to longer loan terms and larger amounts of money.

Disadvantages of secured loans

The application process for secured loans takes longer than unsecured applications. This is because your assets need to be valued for collateral, which can be a time-consuming process.

They’re also less accessible to smaller businesses who are still working hard to become established and might not have any assets to use as security. Even if you have assets available, you might not want to put them on the line.

Advantages of unsecured loans

Without the need for collateral, assets don’t need to be itemised or valued by your lender. This makes the application process for unsecured loans much faster, and many businesses (big and small) choose this route, even if they have access to secured options.

In many cases, you can apply online and get the ball rolling straight away. If you need cash quickly, Valiant can turnaround funds in as little as 24 hours with unsecured finance.

The fact that your assets are kept safe and sound can also be a huge relief. And it’s good to know that your loan term is based solely on the strength of your business, not the value of an asset.

Successfully paying off your unsecured loan can instil great trust in your business and improve your credit score, making it easier to obtain finance in the future.

Disadvantages of unsecured loans

Unsecured loans, while quick to settle, come with higher interest rates. There’s also less flexibility around how much you can borrow and the length of your loan term (i.e. the timeframe in which you repay funds).

Businesses who need large sums of money or longer terms might need to look into their secured financing options.

Which is best for me? Secured or unsecured finance?

The best type of business finance for you depends on what you’re looking to fund and how reputable and stable your business is.

Lenders will look at your financials and credit score—as well as the industry you’re in—when making a decision as to whether they’ll lend you money.

Smaller businesses who are just starting out might benefit from the more lenient approval criteria of unsecured finance, and in some cases, this might be the only realistic option available until the business grows.

Larger and more established businesses, on the other hand, will likely have assets suitable for collateral, making secured finance the more affordable and flexible option.

What can I use unsecured finance for?

Unsecured finance is a versatile product that can be used to fund a range of business initiatives, but it best suits shorter-term investments. This is because unsecured loans are riskier for lenders to offer, so they tend to come with shorter terms and higher rates.

You can still fund larger investments with unsecured finance provided your business can make large enough repayments within a shorter time frame.

Unsecured finance is ideal for quick cash flow boosts to kickstart growth or improve efficiency. Let’s say you see potential to grow your business by increasing your marketing spend, but don’t have the cash upfront. Unsecured finance could help you kickstart this growth.

Unsecured finance is also great for:

  • Buying inventory
  • Stabilising cash flow
  • Increasing working capital
  • Hiring new employees
  • Paying suppliers and wages
  • Daily operations
  • Giving your business extra breathing room
  • Purchasing equipment

What can I use secured finance for?

Secured finance can be used to fund anything and everything for your business, from properties to printers. With more flexible loan terms, secured finance can also fund longer-term initiatives and projects.

To summarise, choosing between secured and unsecured finance really depends on how quickly you want your funding settled, how much money you need and whether or not you can afford to put your assets on the line.

We’re seeing more businesses opt for unsecured funding to get cash quickly, but keep in mind this won’t land you the best interest rate.

Stuck?

Lending is complex. If you’re nxfot sure what you qualify for or have questions about your specific situation, get in touch with our lending experts on 1300 780 568 and they’ll point you in the right direction.

With 100+ years of experience combined in business finance, access to 80+ lenders and cutting-edge tech, they have the tools and knowledge to get you the most competitive rate and best suited product.


Glenn manages a team of working capital and asset finance product specialists here at Valiant, ensuring clients get the very best outcomes for their businesses.

Related Posts

The future of Aussie SMEs: What can we expect?

What does the future of small business look like? Click for our thoughts on recent RBA findings.

Has COVID-19 made it harder to access finance as an SME?

Has the pandemic made it harder for SMEs to get a loan? Click to find out.

Unsecured business loan documentation: Assessing eligibility

Find out how lenders assess your eligibility for unsecured finance based on the documentation you give them.

Valiant partners with Qantas Business Rewards to support Aussie SMEs

Valiant has partnered with Qantas Business Rewards to offer members a streamlined solution to finding the right business finance. Here's how it works.

Is a merchant cash advance a good idea?

Wondering if a merchant cash advance is a good idea? Click to find out how it works, how much you can expect to pay and whether it’s right for you.

7 factors that determine your unsecured business loan interest rate

Which factors determine your unsecured finance interest rate? Click to find out.

Your guide to unsecured business loans [2020]

No time for lengthy finance applications? Unsecured finance cuts through most of the red tape—here’s what you need to know before you apply.

Which assets are best for securing a business loan?

Secured loans require assets for security, but which assets make the cut? Click to find out.

Unsecured vs secured loans: Which is best for your business?

You’ve decided: it’s time to grow your business. There’s one last call to make. Secured or unsecured finance?

How retail businesses can benefit from a Merchant Cash Advance

Grow your business with a little help from your future sales. Find out more about merchant cash advances, a unique form of business finance.

Should you refinance your business loan? Here's what you need to know

Refinancing could help you lock in a lower interest rate, on better terms. But should you do it? Here’s everything you need to know before sealing the deal.

Top 6 questions we get from clients on COVID-19

Check out the top six questions about Coronavirus we had from clients last week. Here's how Covid could impact your ability to get a loan.

Unsecured business lending: Are you eligible?

Your chances of getting approved for unsecured business finance depends on these 12 factors. Click to learn more.

Guide to franchise finance [2020]

Click here to learn about your franchise finance options, and compare loans from 80+ Aussie lenders.

What to look for in a business lender: 7 factors to consider

Choose wisely with these 7 green flags to look out for.

Time is money: What you need to know about bank business loans

Time is money. That’s why you should think twice about which bank to go with for your business loan. Or whether you should go to a bank at all...

Denied business finance? Why Aussies are turning to non-bank lenders

Denied business finance? What now? Here’s why Aussie business owners are turning to non-traditional lending solutions, and succeeding.

Top 3 reasons businesses choose secured finance

Take advantage of lower interest rates and greater borrowing power with secured business finance. Click to learn more.

5 Reasons to take out a business line of credit

A line of credit can take a huge load off your shoulders as a business owner. Click to learn why.

Unsecured vs. secured business loans: Which one is best?

Click to find out whether a secured or unsecured loan suits your business best, and easily compare finance solutions with competitive rates.

Pros and Cons of Unsecured Business Loans: Are they right for you?

Find out whether an unsecured business loan is right for your business, and compare loans from 80+ lenders.

No Collateral? Here's How Unsecured Business Loans Work

Need cash but don’t have collateral? An unsecured business loan might be your answer. Click here to learn more and make your best business move yet.

What is commercial finance and which type is right for you?

Click here to find out which type of commercial finance is right for you, and contact a product specialist to get funding, fast.

Announcing Valiant's $12.5m Series B Funding

Valiant Finance are pleased to announce that we have secured $12.5 million in our Series B equity funding.

Business Loan Checklist: 5 Things Every Small Business Owner Should Do

Don't get caught out. Here's your Business Loan Checklist to put you in the best position to find funding for your business.

How To Apply For An Unsecured Business Loan

Your guide to applying for an unsecured business loan and helping your business grow.

Applying For A Business Loan? Be Ready To Answer These 4 Questions

Put your best foot forward by preparing strong answers to these 4 questions.

How To Find A Great Loan For Your Small Business

A little preparation goes a long way. Get ahead on the finance front with our quick tips to help you with the 3 key areas of your loan application.

How To Get Your Business Set-up on Social Media

Want to reach your customers online? Are you ready to digitise your small business? First up: get smart about social.

How To Find The Right Loan For Your Small Business

Every business is unique. Every business loan is different. What features are most important to you? Consider these 4 things before applying for finance.

5 Hidden Business Loan Fees To Watch Out For

Don't get caught out. Here are 5 hidden fees and charges that could apply to your small business loan.

How To Compare Business Loans Across The Market

You've explored your business finance options. What do you do next? How can you be sure you're comparing loans effectively and getting the best deal?

How To Unlock The Cash In Your Unpaid Invoices

Are unpaid invoices causing cashflow problems for your small business? Invoice financing may be the answer.

What Is A Director’s Guarantee And Why Is Everyone Asking Me For One?

You're applying for loans, you start getting positive responses, and suddenly you're asked for a guarantee. Don't sign until you read this!

Could Debtor Finance Solve Your Cash Flow Concerns?

Are you invoicing your B2B customers with longer payment terms? Is it hurting your cash flow? Debtor finance could be a lifesaver between payments.

Here's What Working Capital Can Do For Your Business

With so many business finance options to choose from, how do you know whether working capital is right for your business? Start by reading this.

7 Tips For Managing Business Debt

2018 is your year. Here are 7 quick tips and tricks to get back in the driver's seat when it comes to battling business debt.

Time To Refinance? Here's What You Need To Know

Are you ready to refinance? Reviewing your business loan every 2 - 3 years can save your SME a lot of money. Here's what you need to know.

19 Business Funding Mistakes To Avoid

Improve your chances of locking down the perfect business loan. Here are 19 business funding mistakes to avoid when you're applying for commercial finance.

5 Must-Ask Questions When Applying For A Small Business Loan

Getting the best rate is all about asking the right questions. Have you done your research? Here's where to start and why.

Debt Or Equity: What's Best For Your Business?

Need to raise cash for your business? We explore the use of debt versus equity, and how to decide which one is best for your business.