Reading time: 2 min
An unsecured loan is a layer of capital between equity and secured loans. They are riskier than secured loans, but also more profitable.
While mortgage holders are usually first in line to receive repayments, an unsecured lender will receive repayments only when all secured lenders are fully paid off. To offset the fact of “being the second in line” means that unsecured debt should have a higher interest rate than the secured debt.
While the unsecured loan is still more secure than the preferred or common equity, the project’s large scale failure could result in a situation where there would be no funds to repay unsecured creditors after the secured creditors have been paid off. In the case of unsecured loans, one should pay attention to the Sponsor they are trusting their funds and the platform’s problematic loan collection process.
Here is an unsecured loan example: https://crowdestate.eu/opportunity/Sooja-tn-2
Read more about other capital types:
- Secured loan: https://blog.crowdestate.eu/en/2020/secured-loan-definition/
- Mezzanine loan: https://blog.crowdestate.eu/en/2020/mezzanine-definition/
- Equity investments: https://blog.crowdestate.eu/en/2020/equity-definition/