In business, a loan is a financial transaction in which a lender promises to lend funds to an individual, company, or other financial entities. The recipient is obligated to pay interest on this debt and also to repay the full principal amount borrowed and until it is paid. This bond (a promise to lend) is referred to as the “security” in the exchange of currency. Most loans are classified into two categories: secured and unsecured. A secured loan, also known as a mortgage or a commercial mortgage is a loan for real estate or personal property. On the other hand, an unsecured loan can be made for any purpose, but it generally involves personal items such as furniture, clothing, vehicles, etc.
Commercial loans in the US are broadly categorized into two types-secured and unsecured, and the term collateral is used to describe anything that can be seized in case of non-payment. For example, if a person takes a secured loan to buy a car, the value of the car is its collateral. Similarly, if a person takes an unsecured loan to buy a house, the value of the property is the security against which the loan can be sanctioned.
There are two types of loan: secured and unsecured. Secured loan refers to a loan where the borrower makes an offer to the lender that the full repayment principal and interest will be repaid to him in return for granting the loan. An unsecured loan does not require any security from the borrower in return for the same. However, the lender may decide to levy a charge against the borrower of a certain percentage of the outstanding loan amount if the loan goes default.
Commercial loans can be either secured or unsecured depending on the nature of the loan, i.e., whether it is needed for purchasing tools or raw materials, business start-up funds or business expansion. Most of the lenders give loans against collateral like business houses and cars, commercial real estate property, etc. Business credit cards are another form of loan where the borrower is given a credit card with a specific credit limit that can be used to make purchases. These business credit cards are the ones that have separate accounts with the financial institutions and lenders and are considered unsecured in nature.
Most of the loans available in the markets are unsecured, which means the lender has no claim on the loan if the loan defaults. The two categories of loans are secured and unsecured. Secured loan entails some sort of security, which can be pledged by the lender to grant the loan. If you go for an unsecured loan, the lender has no claim on the loan but the money is advanced subject to the repayment of the interest and principal.
However, the most commonly opted collateral is some kind of personal asset like a car, business enterprise, etc. These assets can be pledged as security and hence the lender has the legal right to take over the pledged assets if the borrower fails to repay. It is always advisable to go for smaller loans with flexible repayment terms as compared to the large loans, which are long term and with higher interest rates. Thus with a little research and due diligence one can easily find a reliable lender who can provide you with the required finance.