Secured vs unsecured business finance

The core difference

Secured business finance is backed by a specific company asset — property, plant, vehicles, stock or unpaid invoices — that the lender can recover if the loan isn't repaid. Unsecured finance is not tied to any single asset; the lender relies instead on the company's trading record, cash flow and, in most cases, a debenture or director's guarantee rather than a charge over a named asset.

At Credicorp the borrower is always your company, not you personally, and our core lending carries no personal guarantee. The secured-versus-unsecured question therefore turns on what the company can offer as security and how quickly it needs the funds.

What changes for the borrower

• Cost. Secured lending is usually cheaper, because the lender's risk is lower when an asset stands behind the debt.
• Amount and term. Security tends to unlock larger facilities and longer terms — the asset supports a bigger commitment.
• Speed. Unsecured finance is typically faster to arrange: there is no asset to value, inspect or register a charge over.
• Risk if things go wrong. With secured lending the pledged asset is at stake; with unsecured lending the company remains liable but no single named asset has been signed away up front.

Which suits a growing company

Fast-moving companies that need working capital in days often prefer unsecured facilities and accept the slightly higher price for the speed and flexibility. Companies making a larger, planned investment — new premises, a fleet, a big equipment purchase — usually find secured finance the better value because the asset itself supports the borrowing.

Many directors use both: a secured facility for the large, long-lived asset and an unsecured line for the day-to-day cash-flow swings. The right mix depends on what the company owns, how predictable its income is and how quickly the money is needed.