It isn’t enough to simply understand that you need to secure a loan for your business. In order to truly guide your financial ship through the tricky waters of lenders, you must also understand the various types of loans that are available to you. Each commercial loan has its own set of strengths and weakness. Understanding your needs and your capabilities are key to pursuing the correct type of funding.
Two of the most common commercial loans are secured loans and unsecured loans. While there are many similarities between the two, the differences are distinct enough that they must be taken into consideration when selecting your funding.
A secured loan is most often a higher dollar amount than an unsecured loan. This is for one simple reason: collateral. With a secured loan, the borrower uses something of value to “secure” repayment. If the loan goes into default, the lender then has a legal right to seize the property of the borrower that was used as collateral and apply its value toward the outstanding balance of the loan. Most often, the type of collateral that is used is a house or car. Because of the use of collateral, secured loans are often more flexible than unsecured loans. Interest rates can either be fixed or variable, however, generally the interest rates of secured loans will be lower, as the lender assumes less risk. Often the payment terms are also flexible, as some secured loans have a set time in which they must be paid off, while others also have variable timelines.
An unsecured commercial loan is defined by its lack of collateral. The borrower does not have to provide any form of security for the lender, which means that the lender is assuming all of the risk of the loan. It is because of this that unsecured loans often have a higher interest rate and have fixed repayment terms. The borrower not only has a set amount of time to repay the loan, but must also follow a strict repayment schedule, usually including the same date and amount each month. The application process for an unsecured loan is most often faster, as there is no collateral involved in the decision on the part of the lender.
To be honest, this is a very subjective question. Are you looking for a quick influx of capital or are you looking for a higher dollar amount? Do you have items of value that you would be able to use as collateral? All of these elements are things that should be considered before choosing which type of loan would best serve your needs. But regardless of which type of loan you determine is best for the future of your business, be sure that you are aware of the terms and conditions, as well as interest rates and repayment schedules, before accepting offers from lenders.
Dennis Dahlberg Broker/RI/CEO/MLO
Level 4 Funding LLC Private Hard Money Lender
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.