Choosing the right financing option for your business can be difficult; you have to consider your assets, cash flow, time in business and business goals. Learn about secured and unsecured loans to help you decide which one suits best.

Unsecured loans - using the strength of your cash flow

An unsecured loan often looks at the strength and cash flow of your business as security. This is in place of relying on physical assets such as property, vehicles or inventory.

Unsecured loans are generally for smaller amounts ($100k or less). Lenders may approve these loans quickly as less upfront information is required. They’ll typically look at the borrower’s creditworthiness, their account history, time in business, and cash flow. They can use their own records or external records to access this information. Due to a quick approval process, funds can be received more quickly than secured lending. For some small business owners, this faster response and quicker access to funds is a major benefit of having an unsecured loan.

Like many things, there are pros and cons to different lending options. As there is no collateral for security, unsecured loans are a bigger risk for lenders, and as a result they usually have a higher interest rate than a secured loan.

Secured loans - borrow against your assets

A secured loan is one where collateral is required. This may be property, inventory, accounts receivables or other assets. If the loan can’t be met, the lender may rely upon these assets to clear the outstanding balance, interest or fees.

Because there’s collateral to consider, it’s generally a longer process for lenders to approve secured loans than unsecured loans. Lenders may need to value assets and obtain additional proof and documentation of ownership for the assets to be taken as security.

Although the approval process is more involved, the benefit of a secured loan is that lenders are commonly able to offer lower interest rates and higher borrowing amounts than with an unsecured loan.

It’s important to remember though, that the amount a bank will loan isn’t one-to-one with an asset’s value. For example, putting forward a $50k vehicle as collateral won’t result in a $50k loan.

Which business lending option works best for you?

As with many decisions, the right one depends on your individual circumstances. A good starting point is to decide what your business goals are and the time frame in which you want to achieve them.

The faster process of unsecured lending may make it more suitable to businesses growing rapidly or requiring quick access to funds. A secured loan may suit a business after a larger amount of cash; that they can pay back over a longer period of time and generally at a lower interest rate.

Once you’re clear on what you want to achieve, one of our business bankers can talk you through which borrowing option may work best for your business. If you already know that you want an unsecured lending option, take a look at NAB QuickBiz for quick, easy and unsecured financing.

As with many decisions, the right one depends on your individual circumstances. A good starting point is to decide what your business goals are and the time frame in which you want to achieve them.

The faster process of unsecured lending may make it more suitable to businesses growing rapidly or requiring quick access to funds. A secured loan may suit a business after a larger amount of cash; that they can pay back over a longer period of time and generally at a lower interest rate.

Once you’re clear on what you want to achieve, one of our business bankers can talk you through which borrowing option may work best for your business. If you already know that you want an unsecured lending option, take a look at NAB QuickBiz for quick, easy and unsecured financing.

The faster process of unsecured lending may make it more suitable to businesses growing rapidly or requiring quick access to funds. A secured loan may suit a business after a larger amount of cash; that they can pay back over a longer period of time and generally at a lower interest rate.

Important information

The information provided in this article is intended to be of a general nature only. It has been prepared without taking into account your objectives, financial situation or needs. Before acting on the information in this article, National Australia Bank Limited (ABN 12 004 044 937, AFSL and Australian Credit License 230686) (NAB) recommends you consider whether it is appropriate for your objectives, financial situation and needs. NAB recommends that you seek independent advice before acting on any information in this article.

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