Is a Business Loan a Secured or Unsecured Loan?

Is a Business Loan a Secured or Unsecured Loan?
Taking on outside financing, whether it be through crowdfunding, investors, or a loan could be a crucial step in growing your business. If you’re considering a business loan, here are some differences between secured and unsecured loans.
by Deborah Findling May 27, 2025 — 6 min read
Is a Business Loan a Secured or Unsecured Loan?

This article is for educational purposes and does not constitute legal or tax advice. For specific advice applicable to your business, please contact a professional.

What’s the Difference Between a Secured vs. Unsecured Loan?

The key difference between a secured and an unsecured loan is collateral. Secured loans require collateral (like property or inventory) to back the loan, while unsecured loans don’t require collateral but rely on creditworthiness. 

As a business owner, you may need to apply for financial assistance to meet operating expenses, expand your business, pursue new opportunities, acquire business assets, or refinance debt. If you’re considering a business loan, it may come in a secured or unsecured form. But what are the main advantages of a secured vs. unsecured loan?

Differences between secured vs. unsecured loans loans

There are several key differences between secured and unsecured loans. While collateral is the main differentiating factor, there are disadvantages as well as advantages to secured vs. an unsecured loan. Here are some of the key features, both pros and cons, of secured vs. unsecured loans:

Pros of secured loans:

Cons of secured loans:

Pros of unsecured loans: 

Cons of unsecured loans: 

 

While you are likely familiar with many types of secured loans, including mortgages and home equity loans, where your home serves as collateral, or automobile loans, where your vehicle provides the collateral, there are also secured business loans. Secured business loans will typically be backed by company assets, such as equipment or inventory.

Personal loans are typically unsecured vs. secured. Thus, they are not backed by any collateral. Other types of personal loans include credit cards, student loans, and medical loans. Unsecured business loans are fairly common, especially for established small businesses or those with strong credit. Since they don’t require collateral, they’re popular for quick funding, but approval depends heavily on company revenue, credit score, and time in business. Consequently, startups or risky ventures may struggle to qualify for unsecured business loans. An unsecured business loan not backed by collateral may require a personal guarantee

Common examples of unsecured business loans include: 

How does a secured loan work?

Secured loans are ideal for businesses needing large sums, lower interest rates, or that have weaker credit but valuable assets. While a secured loan is backed by collateral, thus inherently reducing the lender’s risk, qualifying for a secured vs. an unsecured loan will involve meeting the following requirements:

 

Terms for secured loans vs. unsecured loans tend to be more favorable overall, often featuring loan amounts of 50 to 100% of the collateral’s value as well as lower interest rates (4-15%) given the reduced risk to the lender. Repayment terms are also generally longer, sometimes up to 30 years. Secured loans generally come with more fees than unsecured loans, however, including origination fees, appraisals (if property is involved), and potential early repayment penalties.

How does an unsecured loan work?

When considering the differences between a secured and an unsecured loan, businesses in need of fast, flexible funding without collateral may be best suited to an unsecured loan. Unsecured loans are ideal for short-term needs or for businesses with strong credit. In order to qualify for an unsecured loan, a business will need to meet the following requirements:

 

Terms for an unsecured vs. a secured loan tend to be less favorable since lenders don’t have collateral to protect risk. That means smaller loan amounts, typically ranging from $1,000 to  

$100,000, as well as higher interest rates, up to 30%, because of lender risk. Repayment terms are also shorter, ranging from three months to 10 years with fixed monthly payments. Unsecured loans may come with origination fees, too, and, like any loan, will have late payment penalties.

Should you get a secured or unsecured loan?

So what are the main advantages of a secured vs. an unsecured loan? A secured loan isn’t necessarily better than an unsecured loan. The right loan depends on your business needs, risk tolerance, and financial health. You’ll likely want to opt for a secured loan if you need a larger amount of funding, desire lower interest rates, or have weaker credit but own valuable business assets to pledge as collateral. An unsecured loan will be a better option if you prefer no collateral (or have none), maintain a strong credit score (680+), and need faster, simpler funding. In exchange, however, an unsecured loan typically comes with higher rates, smaller loan amounts, and stricter approval processes.
Choosing a secured vs. an unsecured loan is really about weighing the trade-offs: Secured loans offer cost savings, while unsecured loans provide flexibility and speed.

Best practices before taking out a secured or unsecured loan

Lenders will take many factors into account when considering  your application for a business loan, regardless of whether it’s secured or unsecured. Thus, it’s important to make sure your business is in as strong a financial situation as possible before applying for a loan:

 

If you’re a Square user, Square Loans1 automatically extends an offer through the Loans tab of your Dashboard. Payment frequency, business health, and customer mix are among the factors that are used to determine eligibility. Once approved, your Square Loan will be repaid automatically with a percentage of your daily sales, with no hidden fees. Plus, you can get your loan funds deposited instantly into your Square Checking2 account, or get your money as soon as the next business day to keep things moving.

1. Square, the Square logo, Square Financial Services, Square Capital, and others are trademarks of Block, Inc. and/or its subsidiaries. Square Financial Services, Inc. is a wholly owned subsidiary of Block, Inc.

All loans are issued by Square Financial Services, Inc. Actual fee depends upon payment card processing history, loan amount and other eligibility factors. A minimum payment of 1/18th of the initial loan balance is required every 60 days and full loan repayment is required within 18 months. Loan eligibility is not guaranteed. All loans are subject to credit approval.

2. Block, Inc. is a financial services platform and not an FDIC-insured bank. FDIC deposit insurance coverage only protects against the failure of an FDIC-insured deposit institution. If you have a Square Checking account, up to $250,000 of your balance may be covered by FDIC insurance on a pass-through basis through Sutton Bank, Member FDIC, subject to aggregation of the account holder’s funds held at Sutton Bank and if certain conditions have been met. See Terms and Conditions. 

¹ Instant availability of Square payments. Funds generated through Square’s payment processing services are generally available in the Square Checking account balance immediately after a payment is processed. Fund availability times may vary due to technical issues.

ACH transfer fund availability: Instant availability does not apply to funds added to the Square Checking account via ACH transfer. ACH credit transfers to your account may take 1–2 business days.

² Square Debit Card is issued by Sutton Bank, Member FDIC, pursuant to a license from Mastercard.

³ Instant transfer requires a linked bank account or supported debit card and costs a fee per transfer. Funds are subject to your bank’s availability schedule. Minimum amount is $25 and maximum is $10,000 in a single transfer. New Square sellers may be limited to $2,000 per day. Fund availability times may vary due to technical issues.

⁴ With early deposit access, Block, Inc. may make incoming electronic direct deposits made through ACH available for up to two days before the scheduled payment date. Not all direct deposits are eligible. Early availability of direct deposits is not guaranteed and may vary from deposit to deposit. Early deposit access is automatic and there is no fee.

5 Cash deposited into your Square Checking account is generally available in your checking account balance immediately after a deposit is processed. Fund availability times may vary due to technical issues.

VanillaDirect Pay is provided by InComm Financial Services California, Inc. and by InComm Financial Services, Inc. (NMLS# 912772), which is licensed as a Money Transmitter by the New York State Department of Financial Services. Terms and conditions apply.

Deborah Findling
Deborah Findling is an Executive Managing Editor at Square. She also writes about investment, finance, accounting and other existing and emerging payment methods and technologies.

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