Secured business loans are a type of business financing that allows firms to borrow money by putting down assets as security. This means that if you happen to default on your loan and can’t repay your debt, your lender has the right to repossess the assets you’ve provided as collateral and recover their funds.
You can use secured business loans to cover the cost of any business-related expenses from buying new equipment and tools to paying your staff and expanding your premises. Secured business loans are often considered a low-risk lending option for lenders, meaning that you might be able to get access to better loan terms, such as access to bigger loans at more competitive interest rates.
Secured borrowing is often paid back over a longer term than unsecured business loans, but the loan application can take longer to be approved. This is because the provider needs time to check that the security is in place and is of sufficient value to recoup in case the borrower defaults on repayments.
Secured business loans work in a similar way to other types of commercial loans but require valuable assets and collateral as a form of security. When it comes to deciding what type of assets you should put down, a lender may already have in mind what kind of collateral they need. This could range from valuable equipment and existing inventory to land and property.
As with most loans, you’ll pay interest on the total amount borrowed and make regular, monthly repayments until the loan is paid back in full.
Secured business loans work in a similar way to secured personal loans. But rather than the business funding being secured against personal assets such as your residential property, the collateral for the business loan will be a valuable item owned by the company, such as commercial property or high-value equipment.
Unlike unsecured loans, secured business loans need to be backed by some sort of collateral or security. With secured business loans, lenders take on less risk as you’ve put down your commercial possessions as security. This means that you’re likely to benefit from more favourable terms, including higher borrowing amounts and lower rates.
Unsecured business loans could be a valuable option for new companies that don’t yet own any assets. Not only that, but the application for unsecured loans tends to be quicker, as lenders don’t need to spend time evaluating assets or collateral.
There are many different types of assets you can use to secure your commercial loan. These are often divided into tangible and intangible assets.
Tangible assets are those possessions that are physical and can be touched. For example, these can be anything from property and land to equipment, vehicles, and stock.
Intangible assets stand for non-physical possessions, such as trademarks, copyrights, licences, intellectual property, and so on. These can be more difficult to value than physical assets and may only be considered by specialist lenders.
If you’re hoping to take out a secured business loan, your company will need to meet specific eligibility criteria.
Lenders will often take into consideration a variety of different factors, including the type of business, trading history, and income available to service the debt.
Some lenders will also ask to see your business plan and financial forecasts, as it is likely to show how you’ll invest the borrowed money. Ultimately, all this information will allow the provider to understand and predict whether you’ll be able to pay back your loan or not.
The business you are borrowing the money for must also be located and registered in the UK
The amount of money you can borrow is partly determined by the value of the assets you decide to put down as security.
For example, if you need to borrow £50,000, then you will need to put down assets that are worth that amount.
Just having assets worth the loan amount will not be enough. Lenders will also look at your company’s credit score and revenue to determine whether loan repayments will be affordable.
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Since secured business loans are a lower risk type of business financing for lenders, it’s likely that borrowers benefit from a more affordable interest rate than they would with an unsecured loan.
Borrowers can often enjoy longer repayment terms, giving you the chance to budget and manage your loan better and allowing you to focus on growing and developing your business.
Even if your company is relatively new and doesn’t have a long business track record, you may be able to get a secured loan because the assets put down as security give potential providers the confidence to lend.
In a similar way to not having a long trading history, your company may still be able to get a secured loan if it has bad credit or a less-than-perfect credit score because the lender knows it can seize the assets should repayments not be met.
You need to provide assets as security, and you may end up losing the possessions you’ve put down as collateral should you be unable to repay your loan.
When applying for a secured business loan, it is likely you will have to wait longer for the process to be completed. This is because the lender will evaluate what you’ve put down as security before accepting the application.
Secured business loans often offer longer loan terms than unsecured loans, helping make monthly payments more manageable. However, this can result in paying more overall interest on the borrowing.