Short-Term Borrowing for Unsecured & Secured Loans

Short-Term Borrowing for Unsecured & Secured Loans
Coming up next: Motives for Holding Cash

You're on a roll. Keep up the good work!

Take Quiz Watch Next Lesson
 Replay
Your next lesson will play in 10 seconds
  • 0:03 Definition of Business Loans
  • 0:51 Short-Term Vs.…
  • 1:39 Secured Vs. Unsecured Loans
  • 3:04 Lesson Summary
Add to Add to Add to

Want to watch this again later?

Log in or sign up to add this lesson to a Custom Course.

Log in or Sign up

Timeline
Autoplay
Autoplay
Speed
Lesson Transcript
Instructor: Natalie Boyd

Natalie is a teacher and holds an MA in English Education and is in progress on her PhD in psychology.

Sometimes businesses need to borrow money to grow, but there are many different types of business loans available. In this lesson, we'll examine different types of business loans, including short-term, long-term, unsecured, and secured.

Definition of Business Loans

Gerald owns a business that sells software to schools and libraries. In general, it's a good business, but Gerald has run into a conundrum. In order to compete with the larger educational software companies and make more money, he needs to expand his business. But he can't expand his business without more money. What can he do?

Gerald might want to consider a business loan, or money lent to a business in order to fund its start-up, expansion, or other needs. If Gerald gets a business loan, he'll have the money he needs to expand, and then he'll be able to compete with the larger companies and possibly make more money.

Business loans, like personal loans, come in different types. To help Gerald pick the best loan for his company, let's look at the different types of business loans in detail.

Short-Term vs. Long-Term Business Loan

Gerald knows that he needs a loan to help him expand his business. But how long should the loan term be for? A year? Five years? Ten?

The term of a loan is how long it takes to pay back the loan and its interest. A short-term loan is for a few months or a year. A loan that takes longer than a year to pay back is called a long-term loan. If the amount of the loan is the same, a long-term loan will have lower monthly payments, but it will end up costing the company more in interest. For this reason, it's usually better to choose the shortest repayment period that the company can support. Gerald thinks that he needs $50,000 to expand his business, and he estimates that they can pay that loan back in seven months. Thus, for his company, short-term borrowing is the best option.

Secured vs. Unsecured Loans

Even though Gerald has chosen the loan term, he still has another choice to make. There are two different types of short-term loans: secured and unsecured.

Secured loans have some sort of collateral attached to them. In his personal life, Gerald has a car and a mortgage. Both of those are secured loans because if he doesn't pay the loans, the bank can take his car or house. In business, short-term secured loans may involve collateral, like property, that the business owns or even patents on its inventions.

To unlock this lesson you must be a Study.com Member.
Create your account

Register to view this lesson

Are you a student or a teacher?

Unlock Your Education

See for yourself why 30 million people use Study.com

Become a Study.com member and start learning now.
Become a Member  Back
What teachers are saying about Study.com
Try it risk-free for 30 days

Earning College Credit

Did you know… We have over 200 college courses that prepare you to earn credit by exam that is accepted by over 1,500 colleges and universities. You can test out of the first two years of college and save thousands off your degree. Anyone can earn credit-by-exam regardless of age or education level.

To learn more, visit our Earning Credit Page

Transferring credit to the school of your choice

Not sure what college you want to attend yet? Study.com has thousands of articles about every imaginable degree, area of study and career path that can help you find the school that's right for you.

Create an account to start this course today
Try it risk-free for 30 days!
Create an account
Support