Secured Lending vs. Unsecured Lending: What’s the Difference?

If you’re looking for a business loan, you’ll quickly realise there are two main types: secured and unsecured. So, what’s the difference? And which one is right for you? In this blog post, we’ll discuss the pros and cons of secured and unsecured lending, so you can make an informed decision about which type of loan is best for you.

What is Secured Lending?

Secured lending requires collateral, such as property, jewellery, cars, or other assets of value. If you default on the loan, the lender can take possession of the assets. At FOLK2FOLK, we only offer secured lending for businesses and require the tangible assets of land or property as security.

What is Unsecured Lending?

Unsecured lending does not require any collateral against the loan. However, this type of loan usually comes with a higher interest rate because it is riskier for lenders.

Advantages of secured lending:

  • Lower interest rates: The collateral provides a ‘safety net’ because it can be sold if the loan is not repaid, meaning secured loans typically have lower interest rates than unsecured loans.
  • Greater borrowing power: With a secured loan, you can usually borrow a larger amount of money than you could with an unsecured loan, for example, FOLK2FOLK loans start from £100,000.

Disadvantages of secured lending:

  • You could lose your collateral: If you default on a secured loan, the lender can take possession of the assets you put against the loan as collateral.
  • You must have enough collateral: If you don’t have enough assets to secure the loan, you will not be able to qualify for a secured loan.
  • Speed of Available Funds: Secured lending may take longer to organise than unsecured lending due to legal and other checks needed to verify and organise the collateral. At FOLK2FOLK, the current average turnaround time from application to funds is 22 days.

Advantages of unsecured lending:

  • No collateral required: With an unsecured loan, you don’t have to put up any collateral.
  • Speed of Available Funds: An unsecured loan may be quicker to organise than an unsecured loan as lenders will not need to complete checks of ownership on collateral.

Disadvantages of unsecured lending:

  • Higher interest rates: Unsecured loans typically have higher interest rates than secured loans because they typically carry greater risk for lenders.
  • Lower borrowing power: With an unsecured loan, you usually won’t be able to borrow as much money as you could with a secured loan.

How can FOLK2FOLK Help?

Now that you know the pros and cons of secured and unsecured lending, you can decide which type of loan is right for you.

At FOLK2FOLK, we facilitate secured business loans for a wide range of businesses and sectors. From farmers seeking to diversify, property renovators and developers, country house hotels and B&Bs, food and drink producers, manufacturing businesses, yoga studios, data centres, commercial premises, cafes, and golf courses to name just a few.

If you’re looking for more information on our secured business lending, take a look at our borrowing page here.