It’s easy to understand the difference between secured business loans and unsecured business loans. The first one allows the borrower to gain access to funding by putting down an asset as collateral against the loan; the second one does not require that you have an asset or property as collateral. Not necessarily secured loans are good debts and unsecured loans are bad debts.

Traditionally secured business loan lenders are able to offer lower interest rates than a lender which only provides unsecured business loans. These two business loans products are based on a different level of risk. This results in a higher interest rate for an unsecured business loan but a more straightforward application process and less lending criteria to meet.

Secured business loans have a lower risk and therefore, a lower interest rate, but a slightly longer application process and more eligibility criteria that borrowers have to satisfy. The advantage of applying for an unsecured business loan is that a business does not need to put down assets as collateral. However, unsecured business loans are generally of a smaller amount and higher interest rate than secured business loans due to the risk to lenders.