Secured vs Unsecured Term Loans

A term loan is a lump-sum business loan repaid over a fixed period with scheduled payments that include principal and interest. In Canada, term loans come in two main flavours: secured (backed by collateral) and unsecured (no specific collateral pledged). Choosing the right structure can lower your cost of capital, improve approval odds, and reduce strain on day-to-day cash flow.

This guide explains how each structure works, what lenders look for, and how to decide—using a pragmatic, credit-analyst lens. If you want a definitional overview first, see Term Loan. If you’re comparing against revolving tools, start with the Business Line of Credit page.

Quick definitions you can act on

• Secured term loan: Backed by collateral such as equipment, vehicles, or a General Security Agreement (PPSA) over business assets. Usually lower rates, larger limits, longer terms, and better approvals, especially for bigger tickets. See Secured Loan and Equipment Loans.
  
  
• Unsecured term loan: No specific collateral registered against your assets (personal/corporate guarantee is still typical). Expect faster funding, lighter documentation, but generally higher rates, smaller limits, shorter terms. See Unsecured Loan.
  
  

Not sure which lane you’re in? Model both options with our calculator, then ask our analysts to quote firm terms based on your file.

How lenders price risk (and why structure matters)

Lenders price three things: probability of repayment, recoverability, and time value. Collateral reduces loss severity, so secured loans typically get better pricing and term flexibility. Unsecured loans shift more risk to the lender, so they compensate with rate/term adjustments and tighter ticket sizes. Other variables:

• Time in business and revenue stability
  
  
• Personal/business credit strength
  
  
• Cash flow coverage (ability to service debt)
  
  
• Asset type and useful life (for secured deals)
  
  
• Purpose of funds and payoff logic (ROI)
  
  

Newer firms can sometimes bridge gaps through Canada Small Business Financing Program (CSBFP) eligibility or by using the asset itself as collateral via equipment financing.

Side-by-side comparison (secured vs unsecured)

When a secured term loan wins

• You’re buying equipment and plan to keep it. Align term to useful life and let the asset secure the loan. Explore Equipment Loans and Equipment Leases (leases can lower the monthly via a residual/buyout).
  
  
• You want the lowest sustainable monthly payment. Security generally unlocks better pricing and longer amortization, easing cash flow.
  
  
• You need a larger ticket. Collateral supports bigger approvals and may reduce the down payment requirement.
  
  
• You already own assets. A Refinancing & Sale-Leaseback can unlock equity and lower blended cost while keeping gear in service.
  
  

When an unsecured term loan makes sense

• Speed matters. You need funds quickly without waiting for appraisals or PPSA registrations.
  
  
• You won’t (or can’t) pledge collateral. You may have a strategic reason to keep assets unencumbered for future borrowing or vendor relationships.
  
  
• The need is modest and near-term. Smaller, shorter-term projects or tight timelines often fit unsecured structures. If your need is truly revolving, also price a Line of Credit instead of a term loan.
  
  
• You’re consolidating costly short-term debt. An unsecured term loan through Business Refinancing can replace multiple remittances (including merchant advances) with one predictable payment—subject to file strength.
  
  

What to watch out for (pitfalls and fixes)

Blanket GSAs
A secured loan may register a General Security Agreement over all present/future assets. This can block or complicate other facilities. Fix: ask for asset-specific security (e.g., charge only against the financed equipment) or carve-outs if you need future asset-based lending or a line of credit.

Term vs useful life mismatch
Don’t carry 72 months of debt on a machine that ages out at 48. Fix: match amortization to the asset’s realistic life, or consider a lease with a buyout for tech that upgrades quickly.

Fixed payment rigidity
Term loans are predictable, but they don’t flex with seasonality. Fix: pair your loan with a modest Working Capital Loan or LOC for receivable lag, or negotiate partial prepay privileges after year one.

Documentation friction
Secured files can require valuations, insurance, and registrations. Fix: plan ahead, or use Unsecured Loans for urgent smaller needs while you prepare a secured package for bigger capex.

Structuring tips to improve approval and pricing

• Choose the right collateral. Strong, liquid equipment (tractors, trailers, excavators, CNCs, imaging units) usually prices better. Verify it’s on our Eligible Equipment list.
  
  
• Tune the amortization. Price 48 vs 60 vs 72 months in the calculator; pick the point where monthly affordability and total interest cross comfortably.
  
  
• Blend products. Many clients run a secured term loan for the asset plus a small LOC for timing gaps; others stack a lease (for lower monthly) with a term loan for permanent improvements.
  
  
• Use programs wisely. Ask if your purchase qualifies for CSBFP. Startups can also explore In-House Financing.
  
  
• Consider refinance options up front. If you expect to pay down quickly or restructure later, confirm prepayment rules and whether a future business refinancing is feasible without heavy penalties.
  
  

Industry snapshots: how the choice plays out

Transportation & trucking
Tractors, day cabs, straight trucks, and trailers are ideal secured-loan or lease collateral. If you’re expanding lanes, consider a Trailer Financing path or a Heavy-Duty Truck approach for the power unit. When freight is seasonal, keep a LOC for fuel, tires, and repairs.

Construction & contractors
Earthmoving and lifting equipment aligns well to secured terms or leases. For mobilization, materials, and draws, pair with a Line of Credit or Invoice/Freight Factoring to smooth receivable timing.

Manufacturing & warehousing
Big-ticket machinery and racking are classic secured-loan assets. If your working capital spikes with purchase orders, add Asset-Based Lending against AR/inventory.

Hospitality & food service
If keeping monthly spend lean is critical, leases with nominal buyouts can beat loans on payment size, while a small unsecured term loan covers build-out costs.

Mehmi sells equipment directly—if you’re shopping for trucks or related assets, review our Inventory and run scenarios in the calculator before you apply.

Case study: Blending security to drop the monthly (Ontario)

A mid-size paving contractor needed a paver plus two compactors before tender season. An unsecured term loan on the full amount stressed cash flow. We instead structured a secured equipment lease on the paver (10% buyout) and a secured term loan on the compactors, then added a modest line of credit for receivable gaps. The blended structure cut the monthly by double digits versus an all-unsecured approach and improved approval certainty. After their first two municipal contracts funded, they used partial prepayment to retire 8% of principal without penalty.

How to choose—three fast filters

Is the purpose asset-specific and long-life?
If yes, secure the loan to improve pricing and terms (or consider a lease if you want the lowest monthly). Start here: Equipment Loans, Equipment Leases.

Do you need speed or minimal paperwork?
Consider an Unsecured Loan for smaller amounts, or bridge with unsecured while a secured file is assembled.

Will cash flow fluctuate?
Pair either option with a Line of Credit or Invoice/Freight Factoring to handle AR timing.

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FAQs

Is a term loan secured or unsecured?
Both exist. Secured loans use collateral and typically price better; unsecured loans prioritize speed and simplicity with smaller limits. See Secured Loan and Unsecured Loan.

Can I start unsecured and switch to secured later?
Often. A common path is to refinance an unsecured balance into a secured structure once revenue stabilizes or assets are purchased. See Business Refinancing.

Will a secured loan encumber all my assets?
Not necessarily. Ask for asset-specific security (charge on the equipment only) if a blanket GSA would block future facilities. If you want no collateral, evaluate Unsecured Loans.

Which is better for equipment?
Usually a secured structure—either a loan or a lease—because it aligns term to useful life and reduces monthly cost. Compare both under Equipment Financing.

What if I already own equipment but need cash?
Consider Refinancing & Sale-Leaseback to unlock equity while you keep the asset in service.

How do I estimate my monthly payment?
Use the calculator. Test 48 vs 60 months and loan vs lease; then share your preferred scenario for a lender-ready quote.

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Ready to structure your file?

Run your numbers in the calculator, decide whether secured or unsecured fits your purpose and cash flow, and feel free to contact our credit analysts through Contact Us. We’ll build a lender-ready package and target 24–48-hour approvals where possible—using the right mix of term loans, leases, and lines of credit.

Are you looking for a truck? Look at our used inventory. Learn more About Us and the Industries we serve across Canada.