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Is a Small Business Loan Secured or Unsecured?

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Banks, credit unions, and online lenders offer both unsecured and secured loans. As such, a small business loan can be secured or unsecured to accommodate the various needs of company owners. Having a thorough understanding of these types of loans will allow you to choose the best loan option for your business.   

With a secured loan, the borrower bears the risk, whereas the lender has more of the risk with an unsecured loan. Because of this, small business owners will be asked to pay a higher interest rate in the latter case. 

Our Lendified experts will help you to determine which small business loan is best for you.

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Types of Small Business Loans

Small business loans are offered with varying terms and conditions that will impact your experience. These factors include: 

  • Interest rate
  • Repayment terms
  • Lender claims on the business or personal assets
  • Length of the loan

In order to survive and thrive, small businesses need access to responsible funding solutions. Here’s the breakdown of what secured and unsecured loans are:

Secured Loans

Collateral is used to act as a security feature in a secured loan in case the borrower cannot repay the lender. The borrower loses their collateral if they cannot fulfill their obligations. As such, secured loans have somewhat of a riskier structure for small business owners compared to unsecured loans. 

What is collateral for a secured business loan? It can be the item you’re taking out the loan to purchase. For a restaurant loan, this could be kitchen equipment. Collateral is also usually designated based on its value to the borrower, to ensure they do everything possible to repay their loan. Traditional financial institutions like banks will often seize collateral in the event of the borrower defaulting. In that case, the bank removes the collateral’s value from your debt while hiring legal authorities to gain the rest of what you owe them.

While secured business loans can be riskier for borrowers, they are often more easily available, since lenders face less risk. Restaurant loans and construction business loans fall into this category. 


In addition to having collateral, small business owners are often expected to provide a large down payment, have restaurant experience and a credit score that’s close to perfect. Having a strong business plan and a clear vision can also improve your chances of securing a loan. 


A construction loan requires you to have a good credit score, low debt-to-income ratio, and a way to prove sufficient income to repay the loan. Applying for this type of loan requires a down payment. Having a detailed plan, particularly one created by the construction company you’re working with, will increase the lender’s confidence in your ability to repay the loan.

Unsecured Business Loans 

When you don’t have collateral or want a less risky loan, unsecured business loans are an option to consider. The lender provides the loan based on the borrower’s creditworthiness. 

Banks and credit unions offer unsecured small business loans that often come in the form of business credit cards and lines of credit where the borrower is pre-approved. However, they also offer education loans, personal loans, and property improvement loans for which it’s difficult to qualify. You need a solid credit history and a reliable source of income. Getting unsecured loans when you have bad credit is challenging, but still possible.

However, traditional lenders often provide unsecured loans with higher interest rates because they have more risk on the lender’s side. Other factors to expect are short terms and smaller amounts of money. What it comes down to is that your word is the collateral. 

How to Improve Your Chances of Getting a Loan

Knowing the distinction between secured and unsecured loans, you can evaluate your business to see what you need to be in the best position for getting a loan from many lenders. Maintaining an above average credit score will significantly improve your chances.

You can use these tricks to build up or improve your business credit score: 

  • Start Using a Credit Card ASAP: The sooner you establish credit, the longer the history will be once you finally apply for a loan. While not all lenders will review your personal credit score, you will need a good score if you apply at a bank.
  • Pay Early: Some lenders, such as banks, are strict when it comes to late payments. However, they sometimes want you to pay early instead of by the due date. It’s important to not bite the hand that feeds you, so to speak, so get your affairs in order long before the due date and pay early.
  • Keep a Good Record: Newbie business owners aren’t aware that lenders have access to information they thought was private. This includes your business credit report that’s filed under your DBA. Information, such as liens, judgements, and bankruptcies are publicly visible and will indicate to lenders how good or bad your credit rating is.   

Remember that if you don’t qualify for an unsecured or secured loan with one lender—especially the bank—there are many others out there that are willing to help you. Forget traditional financial institutions that force such a high barrier to entry, just to get access to business financing. Save time and reduce complications by dealing with Lendified instead!

What Does Lendified Offer?

Lendified offers unsecured small business loans. It’s important to note that while collateral is not required, all Lendified loans have a general security interest on the business, which is registered under the Personal Property and Security Act, and are backed by a personal guarantee.

What Does this Mean?

A general security interest allows the lender (Lendified) to have access to your current and future business assets purchased as collateral. 

Additionally, a personal guarantee means that a small business owner uses personal assets for an unsecured business loan. The assets include your personal bank account, finances, and property. 

Our Lendified experts in small business lending will review your online application and get in touch to discuss your situation and goals. Small businesses must have $100,000 in annual revenue, have been in operation for at least 1 year, and have a personal credit score of 610.

Contact us today, or apply now!

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About the Author



Lendified is Canada's premier online lender for small businesses. The company was founded by former bank executives dedicated to provide businesses with fast, easy, and affordable financing. The Lendified team regularly produces blogs and guides to help small business owners succeed.

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