How To Choose Between Secured an Unsecured Credit Products for Your Business
When you’re needing funding to support your business, it helps to understand the difference between secured and unsecured funding. Without knowing about all of the terms regarding a loan or credit account when you sign up, you could find yourself in an unfavorable situation later on. To secure credit products, you would have to offer your business assets as collateral. This means that if you default on the loan, the bank can take your assets and sell them. This could end up causing a disaster if you aren’t prepared to lose these items.
Think About Secured Products
One of the most common secured products is called a merchant cash advance. With this kind of transaction, a lender gives a business a one-time sum of money all at once in exchange for a piece of future revenue. Unlike unsecured credit lines, this type of funding will require you to give up a portion of your sales later on. If you are perfectly aware of all the risks involved in cash advances, then this product might be right for you.
Consider a Line of Credit
When your business doesn’t need to acquire a large amount of funding, then you should look into applying for unsecured credit lines. Although secured products typically offer borrowers larger sums of money, sometimes a business doesn’t need that much to complete its tasks. Many banks offer a business credit line product that works similarly to a credit card. You may draw funds up to the limit, and when you make a payment, the credit becomes available once again.
Understand the Risks
If unsecured credit lines don’t offer enough funding for your business, then you want to see what kinds of secured products you can apply for. When you need a large amount of money for your business, you will have to put up collateral to receive funding. If you default on the loan, the bank has the right to seize this property and sell it. If you fully understand this risk, then you should go ahead with the application. Sometimes, the only way to get the money you need is by risking some collateral. Make sure to make your payments on time in the future.
Choosing the right type of funding for your company can be tricky. When you understand the possible risks, it can help avoid confusion later on. Sometimes, taking a risk is necessary to grow your business.