What is the difference between a secured and an unsecured business loan? - A secured business loan is a loan that requires the borrower to offer some asset, such as property, equipment, or inventory, as collateral to guarantee the loan. If the borrower fails to repay the loan, the lender can seize the collateral. A secured loan typically has lower interest rates and higher borrowing limits than an unsecured loan.
An unsecured business loan is a loan that does not require any collateral. The lender relies on the borrower’s creditworthiness and promise to repay the loan. If the borrower defaults on the loan, the lender may sue the borrower or ask for a personal guarantee. A personal guarantee is a legal agreement that makes the borrower personally liable for the loan. An unsecured loan typically has higher interest rates and lower borrowing limits than a secured loan.
The main difference between a secured and an unsecured business loan is the use of collateral, but there are also other differences in the requirements, terms, and benefits of each type of loan.