You’ve done the math and determined that you need a loan to take your business to the next level. Now what?

It doesn’t matter if you need a secured or unsecured business term loan to accept a new contract, pay for payroll, or expand your organization.

The only exception is that if you or your directors have a poor credit history, your business is very young, and you don’t have much revenue to show for it.

Lenders are more likely to reject your loan request if they believe it poses a high level of risk to them.

Why collaterals are required

Lenders may require existing assets in less-than-ideal circumstances. The same is true for a secured term loan.

Such assets are sometimes referred to as collaterals or security interests. Examples of collaterals are bills of lading (not HDB), equipment, a car, residential (non-HDB), commercial, or industrial property. The owner of the valued asset must be pledging it.

According to the loan’s objective, quantity, and term, some types of collateral are more appealing to lenders than others. The lender will assess the asset’s value before making a judgment.

Due to depreciation, a lender’s appraisal of an asset is based on what it will be worth at the end of the loan rather than its market value at the beginning.

As a precaution, the lender may ask for extra collateral if it believes the collateral you are supplying will continue to depreciate.

In exceptional instances, debtors may even promise jewelry or fine art. Property is the most widely used collateral: residential (non-HDB only), commercial, or industrial.

Check out this Free Residential Property Valuation tool if you’re unsure how much your property is worth.

How much your house is worth, as well as the values of surrounding properties, may be determined in minutes using our online estimator.

Benefits of a secured term loan

A secured term loan default could result in you losing the collateral you provided to your lender. For some, this is a scary and risky proposition.

A secured or unsecured loan application is never easy.

Some of the time, you may not even know why your loan application was denied! Unsecured loans are risky for the bank or financial institution, which is why you need to obtain a personal guarantee.

On the other hand, a secured business term loan has several advantages.

1. Higher loan amount

Any lender (particularly a bank) aims to lower the level of risk associated with lending money to a small business proprietor or manager.

Reduce the risk associated with your loan application by pledging a valuable asset that you own. On the other hand, a secured term loan has a more significant amount than an unsecured term loan without security.

2. Longer Repayment Terms

Imagine that you are applying for a term loan that is not secured. In the absence of an excellent credit record, a lender will wish to reduce the risk of default by granting you a shorter loan term from one to twelve months.

As a result of the asset being pledged, you are more likely to acquire a secured term loan with a longer loan duration (up to five years).

3. Lower interest rate

They can confiscate property or a car if you fail to return a debt regularly.

A borrower’s most significant motive to repay a debt is this worst-case scenario. So the lender can offer you a cheaper interest rate on the secured term loan than they would have if you had requested an unsecured term loan.

4. Higher borrowing limit

An urgently needed unsecured term loan, on the other hand, will take longer for the lender to approve than a secured term loan with collateral.

This type of approval can take up to a month, whereas the latter can be accepted in just a few hours.

Secured loans offer more significant borrowing limits than unsecured loans, though.

5. Easier approval 

You must meet the lender’s (undisclosed) set of requirements for this to be true. Therefore we say this with some trepidation.

With the SME Business Loan Eligibility Check, you can determine if you qualify for a loan depending on your needs. It is free to use and will provide a percentage estimate.

Generally, lenders are more likely to approve a secured term loan if you have an asset to pledge than an unsecured term loan, which carries a higher risk.

6. Easier to Obtain Financing if Experienced

As said before, a secured loan is easier to obtain if your organization is already established. Because startups haven’t proven themselves yet, banks and alternative lenders are less reluctant to work with them.


Before asking for a loan, you should carefully assess your needs and the loan’s purpose. Unsecured term loans also have their advantages, even though secured term loans have more benefits.

The second alternative may be a suitable option for those with solid credit and personal guarantees, especially when you need the loan immediately.

Be sure to clear up any questions you have before applying for a loan of any kind. To avoid losing your property or car to the lender, you must be relatively sure that you will be able to make your loan repayments on schedule.

For example, ask the lender what happens if you can’t pay on time owing to cash flow issues.

Will some wiggle room and flexibility be allowed? Are the options for repayment flexible, and can they be changed? When it comes to late repayment costs, what are they? The lender will be able to seize your assets in certain circumstances, though.

As a result, organize your budget carefully to guarantee that you can pay back your loan on time.

Published On: September 29th, 2021 / Categories: Uncategorized /