Thursday, July 10, 2025
How to Choose Between Secured and Unsecured Business Funding in 2025
Business Line of Credit vs. Term Loan: Extending the Analysis to Secured and Unsecured Options
Understanding the nuances between a business line of credit and a term loan is foundational. But factoring in secured vs. unsecured structures takes that decision-making to a more strategic level.
The Financing Landscape: Collateral Drives Structure
As the small business lending market evolves, traditional banks gravitate toward secured lending, while alternative lenders are increasingly dominating the unsecured financing space. On average:
- Secured loans range between 6.13%–8.88% APR
- Unsecured loans can span from 9% up to 99% APR, depending on risk profile
That range reflects the underlying risk calculus lenders make—and explains why over $500 billion in unsecured trade credit is extended annually in the U.S. wholesale sector alone.
Key Differences: Secured vs. Unsecured Business Financing
What Makes a Loan "Secured"?
Secured products require collateral, often in the form of:
- Equipment
- Real estate
- Inventory
- Accounts receivable
The lender places a lien on these assets and gains recourse if the borrower defaults. Examples include:
What Defines "Unsecured" Financing?
Unsecured loans require no pledged assets, relying instead on your:
- Creditworthiness
- Cash flow
- Personal guarantee
Common unsecured financing options include:
Comparing Credit Lines: Secured vs. Unsecured
| Feature | Secured LOC | Unsecured LOC |
|---|---|---|
| Collateral | Required | Not required |
| Interest Rates (2025) | 6.47%-7.92% | 7.80%-60% |
| Approval Speed | Slower (2-6 weeks) | Faster (1-7 days) |
| Credit Score | 650+ preferred | 600–700+ required |
| Personal Guarantee | Often required | Usually required |
| Limits | Higher ($100k+) | Lower ($5k–$750k) |
Notably, lenders like Fundible, Bluevine, and U.S. Bank lead the unsecured space with quick turnarounds.
Term Loan Comparisons
| Feature | Secured Term Loan | Unsecured Term Loan |
|---|---|---|
| Collateral | Required | Not required |
| Rates (2025) | 6.13%–12.36% | 9%–99% |
| Approval Time | 2-6 weeks | 1-14 days |
| Loan Size | Up to asset value | $5k–$2M typical |
Secured term loans shine for asset-heavy projects like equipment or real estate purchases, while unsecured options work best for immediate working capital needs.
Interest Rate Trends: Collateral vs. Risk
Rates track risk:
- Secured = lower spreads
- Unsecured = higher premiums
SBA-backed loans provide middle-ground solutions, often with no collateral required under $50,000.
Strategic Decision-Making: Which Is Right for You?
Choose Secured Financing If:
- You have collateral
- You need larger funding
- You want lower interest rates
- You’re in a capital-intensive industry
Choose Unsecured Financing If:
- You want speed and flexibility
- You have strong cash flow and credit
- You lack physical assets
- You prioritize asset protection
Key Takeaway
Asset availability and risk tolerance should drive your financing strategy. Many successful businesses mix both—using secured loans for long-term investments and unsecured lines for short-term operational flexibility.
At SCG Funding, we help growth-minded businesses navigate this balance—combining speed, strategy, and structure to align financing with your business goals. Whether you're leveraging assets or protecting them, our experts can structure the right solution to fuel your next phase of growth.