Business Credit Center

Comparing secured and unsecured credit

What is secured credit — and how is it different from unsecured credit? Learn the basics of both to decide which might be right for your business.

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Comparing secured and unsecured credit

You may have heard of loans and lines of credit. But do you understand the basics of the two major types of credit — secured and unsecured — and what sets them apart? Here’s a rundown of how these credit options can help you expand the possibilities for your business.

Secured credit

This extends business credit based on specific, pledged assets that reduce risk for the lender if you can’t repay.

Unsecured credit

This extends business credit based on your overall creditworthiness, both business and personal.

Typically based on

Secured credit is based on a percentage of the asset value being pledged as collateral – whether secured by a cash deposit or the asset that is being purchased (commercial real estate, vehicles, and industrial equipment). Unsecured credit is based on credit profiles (both personal and business). potentially business cash flow or other attributes like industry type, especially for larger loans.

Repaid from

Secured credit is repaid from the general assets of the business, and collateral if necessary. While unsecured credit is repaid from the general assets of the business only.

Key features

Secured credit's key features include generally lower interest rates than unsecured credit, and can allow for larger limits/amounts, longer terms, can offer specialized features to make purchasing vehicles or equipment easier, and cash-secured options requiring a “collateralized” deposit account with advances allowed up to a specified portion of the pledged collateral. Unsecured credit is typically available to businesses with at least two years of profitable operation, can be used for just about any business purpose, and the amount depends on credit histories, business cash flow, or both.

Best if you have

Secured credit is best if you have sufficient cash flow to pay off a major asset purchase, cash-secured options, little or no credit history, or past credit challenges. Unsecured credit is best if you have solid personal and business credit histories and sustained business cash flow

Best used for

Secured credit is best used for property or equipment for long-term business goals, a commercial real estate investment, locking in a lower interest rate, cash-secured options like gaining access to credit tools for which you couldn’t otherwise qualify and building credit for the future. Unsecured credit is best used for leveraging credit to help run or grow your business, getting access to cash for just about any business purpose, and preserving existing cash on hand for future needs.

To explore your credit options, use our Credit Finder Tool.

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