Secured business loans

What is a secured business loan?

Secured business loans enable you to access funding by providing an asset, such as a property your business owns, as security. Because there’s less risk to the lender, interest rates can be lower compared to unsecured business loan rates. The lender can sell your asset to recover the funds if you don’t repay.

Secured business finance is also known as asset-backed lending.

How do secured business loans work?

If you’re eligible for secured finance the lender will agree to lend you a sum of money based on the value of the business asset (or assets) you’re using as security. The lender will also consider your business’ financial circumstances and needs. 

Secured business finance can take longer to arrange. 

Depending on the lender and the complexity of your situation, the process could take up to several weeks. Your assets will undergo a valuation and if you’re offering a property as security it’s likely that the lender will place a legal charge on it. 

Most secured business loans come with fixed interest rates. Depending on your needs and eligibility, you may be able to opt for a short, medium or long-term secured business loan. Many lenders will lend up to 100% of the value of your asset.

What assets can I use for a secured business loan?

Fortunately, the majority of lenders will accept a range of tangible and intangible assets as security, making secured business loans an accessible option for a variety of business sectors. Common tangible business assets include:

• Property

• Land

• Machinery

• Equipment

• Vehicles

• Accounts receivables

Intangible assets include trademarks, copyrights, intellectual property, licences and patents. You might be able to offer multiple assets or your own personal assets. Keep in mind that a personal guarantee may also be required.

Secured business loan advantages 

Lower interest rates

Business loans that require security tend to be cheaper than unsecured loans and other types of finance. The risk of the lender losing their money is smaller because they can claim the lost funds through the sale of your asset if you don’t repay.

Larger sums

Larger amounts tend to be available through secured business finance; although it does depend, to a large extent on the value of your asset. You may be eligible to borrow up to 100% of the net value of the asset or assets you offer as security.

Longer repayment terms

The longer the loan term, the lower your monthly repayments are likely to be. This can benefit your business from a cash flow perspective, but it’s also important to consider the total loan cost. Your Funding Options expert can talk you through this.

Less focus on trading/credit history

Because your business assets act at the guarantee, the lender may be more flexible when looking at your trading and credit history. 

For this reason, secured finance could be a viable option for startups that haven't been trading for long, or companies that don’t have a perfect credit rating. 

Secured business loan disadvantages

Risk to business assets

You can’t get a secured business loan if you don’t have a business asset to use as security, or do but aren’t willing to offer it as security for a loan (for example, because you don’t want to risk losing it if you can’t meet the repayments). Remember: if you don’t repay your business loan the lender can sell the asset to recoup the costs. 

Fees 

It’s likely that you’ll have to pay upfront costs when taking out secured finance. For instance, if you’re using property as security, you may have to pay valuation fees and legal fees if the lender puts a legal charge on it. You will still have to meet the costs of valuation if your loan is declined or you are offered a smaller amount.

Not as fast

It can take longer to get a secured business loan because of the lender’s due diligence processes. It’s a good idea to have all your relevant business paperwork together when you apply, to avoid any unnecessary delays.

Secured vs unsecured business loans

An unsecured business loan doesn't require you to offer business assets as security. However, the lender still needs to feel confident that you can repay in order to lend to your business, so they will look closely at its credit rating and trading history. 

Unsecured business loans could suit businesses that don’t own assets, would prefer not to offer an asset as security, or those who need finance quickly. 

Unlike a secured business loan – which is largely informed by the value of the asset offered as security – the amount you can borrow through an unsecured option will typically be a multiple of your annual business turnover. 

Unsecured finance tends to be quicker to arrange because you don’t need to go through the asset valuation process. You’ll probably get the funds quicker but interest rates are usually higher. 

By offering business assets as security, you’re reducing the level of risk from the point of view of the lender. In this sense, unsecured finance is seen as riskier which is why interest rates can be higher. With secured finance, you’re more likely to be able to borrow a larger amount over a longer period and at a lower interest rate.

Secured or unsecured, always consider the total cost of the loan. If you borrow funds at a low interest rate, bear in mind that costs can accumulate over the long term. 

Secured business loans alternatives 

Secured business loans aren’t for everyone. A startup, for instance, simply might not have the assets yet. If you’re unable or unwilling to get a secured business loan, there are many alternative financing options to explore, including:

• Business credit cards

• Overdrafts

• Revolving credit facilities

• Merchant cash advances

Are you ready to apply for a secured business loan?

You can use Funding Options to apply for a secured or unsecured business loan. The process is quick – you’ll typically receive a decision within 24 hours. Just tell us how much you need to borrow and what it's for, and we’ll compare 120+ lenders to match your business with the right finance options for its needs.