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Top Differences Between Secured and Unsecured Loans

While beginning a business venture is an exciting initiative as it gives one the liberty of pursuing one’s dreams. However, there are a number of aspects which need to be considered including the finances. Many of the entrepreneurs who start their own ventures are not able to fund themselves and as a result, they have to resort to seeking funds. One of the best known among the various kinds of funding available are business loans.
Business loans are of two types - secured and unsecured. Even though the purpose of providing this loan remains the same, i.e. to provide businesses required funds to expand themselves, there are a few subtle differences between the two.

Here are the differences between them -

Collateral
 
If you opt for secured business loan, then you have to offer a collateral which is an asset that is pledged by the borrower in order to secure the loan. This is, however, not so in the case of unsecured loans. This there is no need to protect the loans with any kind of assets. Thus, if under any kind of circumstance, you default on your payment then you do not have to worry about the loss of your assets.

Borrowing Costs
 
In case of unsecured business loans, the risks involved for the lender are higher in comparison to secured loans. This is why, in case of the former, the cost of borrowing is higher and as a consequence so is the interest rate. However, in case of secured loans, the cost of borrowing isn’t much low either as you have to pay for collateral valuation.

It is thus more than essential to check the costs involved thoroughly before opting for a business loan.

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