The Pros & Cons of Secured Business Loans You Must Know Right Now
Running a small business entails you to face various challenges. With the fierce competition, you need to make a mark on the world of business to stand out and prosper. In most cases, the only way to attain this is to secure proper funding. However, limited resources can hinder you from growing your business.
Whether you’ve only started in the industry or have been established for years now, but need to get some capital, you may consider applying for a secured business loan.
Secured small business loans can help you set your place in the industry and unleash the potential of your business to the fullest. If you are considering getting one, read the information below to learn more about its pros and cons, and determine if this loan is right for you.
What Is a Secured Business Loan and How Does It Work?
To qualify for a secured small business loan, you have to offer business assets, such as your machine, vehicle, or commercial property, as collateral.
Lenders require security. After all, lending to startups and small businesses is particularly risky since they do not have an impressive financial track record yet. Your lender will then assess the amount you can borrow based on the value of your collateral through the loan-to-value (LTV) ratio.
What Are the Cons of Taking a Secured Small Business Loan?
It risks you of losing your business asset
If in case you were not able to repay the loan and meet your loan terms and repayments, your lender can sell your asset to gain their money back. You will risk losing your asset, which is why you have to take a secured loan only if you are sure you can repay it.
It can damage your credit score severely
Failing to repay your loan can lead you to have a severely damaged credit score. As a result, it will be more difficult for you to qualify for another loan in case you plan to apply for one in the future.
What Are the Pros of Getting a Secured Small Business Loan?
It offers you a more extended repayment period
With secured loans, you can determine your capability to repay your loan and lengthen your repayment period accordingly. This way, you can manage your finances better and repay your loan more comfortably.
It allows you to take out larger loan amounts
Unlike an unsecured loan, secured loans let you take out larger loan amounts since you are offering collateral to your lender. You can use that amount to fund parts of your business that need financing.
It lets you negotiate lower interest rates
Aside from allowing you to get larger amounts of loan, your collateral can also help you negotiate lower interest rates. Keep in mind, though, that these rates will highly depend on your financial situation and credit history. Ultimately, your lender is the only one who can assess if you are a reliable borrower or not.
In general, secured business loans provide you with an exceptional way to fund your business. However, before taking one, you should weigh in the pros and cons carefully and determine if this is the right solution for you.
Obtain the right business loan in Sydney for your startup or small business with our help. We work with top lenders and offer you a hassle-free and stress-free loan process!