What’s going on, guys? It’s Jeff, from 0 Percent. In today’s video, we are gonna learn about different types of financing, okay? Because really, there’s debt financing and there’s equity financing, and what is the difference? While equity is usually taking equity ownership in something in return for some type of financing, and debt financing is where you’re getting paid some type of interest based on them giving you a loan, and on this channel, we mainly talk about debt financing. And within debt financing, there are two different types of lending, okay?
There is secured and unsecured. It’s very, very important to know the differences because they have different risks, and in different situations, you want to use different types of debt. So I’m gonna hop into a screen share right now and show you exactly when you want to use unsecured and when you want to use secured. So let’s hop into a screen share real quick, alright? So secured lending, it has collateral.
Secured means that there’s some type of collateral backing alone. It could be a watch, a house, a car, or securities. But what you have to realize is when you’re securing it with collateral, it lowers the risk for the lender, which is a big deal because anytime that you’re lower risk, well guess what that does? That allows them to give you higher limits and lower rates. Since there is a lower risk for the lender, they are able to extend higher limits, like I said, with a lower interest rate. So only when you’re securing something, you should get a lower interest rate than something that is unsecured that does not have collateral in there.
But oftentimes, you can’t get huge, like massive lines of credit that are completely unsecured because there’s just more risk to the lender. And also, you got to look at it from you, from your standpoint. So you’re most likely the borrower, so since there are assets that are pledged as collateral, you, if you are the borrower, have more risk, possibly losing that asset that you pledged. So if you put your house, car, or watch securities up for grabs, then if you default on that loan, well guess what they’re gonna do? They’re gonna take the collateral on that debt, which you need to weigh that risk. Okay? So if you’re doing something risky, you do not want to use some type of secured lending.
You would want to use unsecured lending because the worst thing that happens is they can knock your credit score. If you did have to personally guarantee the debt, you know, so you got business credit, and you did personally guarantee the debt by putting your social security number down, well then yes, they can knock your credit score, but no, they will not be able to take your house, car, or whatever it is if it’s unsecured.
But the great thing about it is you can work, you know, on your business and build that business credit history to the point, and you know once you actually have a profitable business, you could have no personally guaranteed unsecured debt, meaning if you default on it, the only thing that they have is to go after your business’s credit score, which is really not that big of a deal. So that’s where you want to work with business credit. Unsecured obviously has no collateral because there’s no asset that’s pledged behind it. So they literally only have to go off of your social security number. So if anything happens, like I said, the only thing that can drop is your credit score. This just has lower limits, higher rates, you know, unless you’re actually using 0%, and that’s kind of what I specialize
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