Business loans
What collateral is, how the two kinds of loans compare, and how to choose the right one.
Business loans
What collateral is, how the two kinds of loans compare, and how to choose the right one.
The short answer
Collateral is something of value that backs a loan. If the loan isn’t paid, the lender can take it to get its money back.
Business collateral can be:
A secured loan is backed by collateral. Because the lender has less risk, you often get a lower rate and a bigger loan.
For example, on a CSBFP loan, the lender must take security on the equipment or property you buy with it.
An unsecured loan has no specific asset backing it. The lender relies on your cash flow and credit instead.
That usually means a smaller amount and a higher rate. And most lenders still ask the owner to sign a personal guarantee.
| Secured | Unsecured | |
|---|---|---|
| Backed by an asset? | Yes | No |
| Rate | Usually lower | Usually higher |
| Amount | Usually bigger | Usually smaller |
| Speed | Can take longer (asset checks) | Often faster |
| Personal guarantee | Sometimes | Often |
Not sure? Tell us what you need and we’ll show you secured and unsecured options side by side.
A secured loan is backed by an asset, like equipment or property. An unsecured loan is not.
They can be, because the lender takes more risk. Strong cash flow and good credit help a lot.
Equipment, vehicles, property, stock, and money customers owe you are common examples.
Often, yes. Many lenders ask owners of small businesses to sign one, even when there is no collateral.
Keep reading
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