Are small business loans secured or unsecured?

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Business growth is vital for many small business owners. The business growth period is a great time for a business and the excitement of opportunity is in the air! Are you a small business owner looking to grow your business to take it to the next level?

Although growing is exciting it can also be a worry as businesses wonder how they will fund the necessary expansion. There are different ways that a business might fund the expansion, they could dip into savings, borrow from friends and family, or look at secured and unsecured business loans. 

A secured or unsecured business loan is basically an agreed-upon amount of money lent to a business by a traditional bank or an online lender. Lumi is an online lender that specialises in small business lending and enables businesses all over Australia to seize opportunities to expand their businesses.

Common reasons for a business to take out a loan include covering short-term losses, business expansion opportunities, purchasing new equipment, and covering wages and periods of slow cash flow.

A perfect reason why a business may look into a business loan could be a gym that needs to update its equipment, including treadmills, bikes, and weight sets. Old, broken, or faulty equipment can become a liability and cause injury to members and patrons costing the gym more money in the long term. If the gym funds are currently tied up in other business aspects, then a loan will help cover the cost of that equipment now. This will provide a safer and better experience for the customers of the gym.

You might be wondering would secured or unsecured business loans suit my small business best? In this article, we will dive into the main differences and what loan type could be more beneficial for your business.

What is an Unsecured Loan?

An unsecured loan is a flexible finance solution without being secured to any asset. Your business may need a quick small cash injection to cover expenses in the short term. Lumi offers unsecured business loans of up to $300,000 that can be repaid over 3-36 months. An unsecured business loan is perfect for a business not needing such a large amount of cash and needing funding quickly.

Why could unsecured business loans benefit your business? 

Fast application process: As the loan amounts are usually smaller with unsecured business loans and there is no collateral needing to be assessed, the application turnaround can be much quicker. They can usually process, approve and give you access to the funding within 24 hours and sometimes even on the same day. This can be particularly advantageous for those businesses needing quick access to money to expand the business or any other sudden financial needs.

Shorter loan term: Rather than being locked into a 5 -10+ year loan, unsecured business loans can be anywhere from 3-36 months depending on which lender and loan type you choose. Many of these loans have a variable interest rate, meaning that if you have the ability to pay the loan off sooner, you can. This is a great advantage for prosperous businesses to reduce the total amount of interest paid.

No need to offer collateral: With unsecured business loans, the lender is taking on the risk by not requiring any collateral to secure the loan. With a larger traditional loan, a lender may wish to evaluate an expensive piece of machinery or property that they can liquidate if the borrower cannot repay the loan. Without the collateral being used the risk to the borrower is reduced.

Less time paying interest: As unsecured business loans have a shorter life span and can be paid off sooner than the end date, the borrower can significantly reduce the amount of interest paid by paying off the loan sooner. An example using the Lumi calculator if the loan interest rate is 12% on a $100,000, 24-month term, the total amount paid would be $124,635.91. However, if the business finds itself in a position to pay off the loan in 12 months’ time (1 year earlier), then the total amount paid would be 112,000.82. That is a saving of $12,635.09! 

What is a Secured loan? 

Secured loan

A secured business loan is an amount of money borrowed that is secured to an asset. The assets you can secure a loan to can be property, a vehicle, inventory, a piece of machinery, or equipment. This is to guarantee the loan amount can be repaid or the asset will be seized in default of your repayment. The interest rates for secured loans tend to be lower. Did you know that Lumi offers secured loans that are flexible of up to $500,000?

Why could a secured loan be a good option for you? 

Larger Loan amounts: A secured business loan can be a good option for a business looking to acquire a larger sum of cash. Because the loan amount is higher the lender will ask for some sort of collateral to secure the loan with. This reduces the risk to the lender of loaning the money. Lumi offers secured loans of up to $500,000, an increase of $200,000 from an unsecured loan. You also have the option with Lumi to pause your loan repayments for up to 4 weeks, interest-free, whenever you need to.

Lower Interest Rates: With a larger loan amount and a longer loan period, the borrower will usually be offered a lower interest rate than with an unsecured loan. This can be beneficial in paying less interest over the term of the loan. 

Lumi provides small business owners with the best of both worlds, secured and unsecured business loans. You can use the easy-to-use application process to apply today for the loan type that best suits your business. Once you are approved, your funds will be deposited within 24 hours, helping you to expand your business and take advantage of any growth opportunities that come your way! To find out more click here.

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