The Difference Between a Secured and Non Secured Loan
With a secured line of credit, collateral is required by the lender to secure the loan risk against default. The collateral is often the receivables, equipment and or inventory of the applicant’s company. The cost of a secured line of credit much lower than an unsecured line of credit. A secured line of credit issued by a bank can range from prime rate plus 1%, and a secured line of credit issued by a non bank can range from 7%-12%.
Unsecured loans, or merchant cash advances, are extended based on the monthly cash flow of the applicant’s business. The cost of unsecured loans is much higher than a secured line of credit and payments often are required weekly or even daily. Unsecured loans can be considered when there is an urgent cash requirement for the business, and the repayment would not significantly impact the day-to-day cash flow of the business.
Borrowing Money Like a Credit Card
A small business line of credit is revolving, like a credit card, and you must go through a credit review and annual renewal. You will start to accumulate interest as soon you begin drawing funds. As you pay down your balance, the amount you pay is available again to borrow, minus the interest. This line of credit is also like a credit card because a lender will set a limit on how much you may borrow.
How to Use a Business Line of Credit
Short-term funding access is the top reason businesses open a line of credit. Most companies support their financing for payroll, supplies, increasing inventory, and other operational expenses. Cyclical businesses will often source their off-season capital using an unsecured line of credit. The funds you borrow for your business are at your discretion, and using them responsibly can help your business thrive throughout the year. Springboard Funding Partners has a network of lenders and extensive financial expertise to help you obtain the best loan option for your business.
Secured & Non-Secured Lines of Credit
Lenders require collateral for a secured line of credit to secure loan risk against default. The borrowing company will often use equipment, inventory, or receivables as collateral, and the cost of this line of credit is lower than an unsecured option. Unsecured loans don’t require any type of collateral from the borrower to receive funding. Instead, lenders make these loans based on the monthly deposits into the applicant’s business banking account over the prior four to six month period. The lender takes on more risk with an unsecured line of credit, therefore the interest rate will be considerably higher than a secured line of credit backed by collateral.
Springboard Funding Partners Serves Business Owners Nationwide
If your company needs reliable funds to pay for business expenses, Springboard Funding Partners is ready to help you. We have your financial interests and well-being as our top priority with business lines of credit from reputable lenders.