Secured Business Loan
Secured lending provides businesses with the opportunity to access flexible and affordable capital by offering one or more assets as collateral. A secured business loan can be an ideal option for small and large businesses where substantial sums of money are needed quickly.
In our introductory guide to secured business loans for SMEs, you will find all the insights and information needed to determine whether secured lending is right for your business.
What are secured business loans?
Secured business loans are financial products issued on the basis of the security offered by the borrower. Also referred to as asset-backed lending, the applicant uses one or more business assets as an ‘insurance policy’ of sorts to cover the costs of the loan.
Depending on the value of the asset (or assets) the loan is secured against, secured business loans can be provided for any amount. Secured loans are considered a lower-risk product by lenders as they are backed by assets of value, enabling them to be offered at more competitive rates of interest than unsecured loans and for larger amounts.
The borrower’s assets, however, may be repossessed by the lender in the case of non-repayment.
The features of secured business loans
Most business loans are provided as bespoke solutions, negotiated between the business and the lenders in accordance with the borrower’s requirements. Secured borrowing is typically far more flexible than unsecured borrowing, often enabling a business to repay the balance gradually over a longer period of time.
Other typical features of secured business loans include the following:
- Easy to arrange and often with no deposit to pay
- Lower rates of interest than comparable unsecured loans
- The ability to borrow a high percentage of the asset’s value
- Loans are available for any amount, depending on the security offered.
- Open to applicants with a poor credit history
- Long repayment periods
- Flexible terms to suit all preferences and requirements
Ensuring you get the best possible deal on a secured business loan means comparing as many deals as possible with the help of an independent broker. Specialist lenders often offer their services exclusively via established brokers, so it is essential to seek broker support rather than approaching lenders directly.
What are the main benefits of secured business loans?
Secured lending can be advantageous for SMEs in many ways, including but not limited to the following:
- Larger loan amounts: There are technically no limitations whatsoever to how much you can borrow in the form of a secured loan. If you are able to offer viable assets of sufficient value, lenders are often willing to offer a high percentage of the value of the assets in the form of a secured loan.
- Flexible repayment terms: Choose to pay off your secured business loan as quickly as possible to minimise borrowing costs or repay the balance gradually over a longer period with a series of affordable monthly payments. Flexible options are available to meet all requirements and budgets.
- Competitive interest rates: As secured loans are considered lower risk on the part of the lender, they are usually offered at much more competitive rates of interest than comparable unsecured loans. Overall borrowing costs can also be significantly lower.
- Poor credit applicants: A poor credit history (or no credit history) need not be an obstacle when applying for a secured business loan, as eligibility is weighted towards the assets offered to cover the costs of the loan.
- Ideal for new businesses: Smaller and newer businesses in particular are prone to running into cash flow issues from time to time and may benefit from the opportunity to tap into the equity they have tied up in their assets.
Depending on the type of secured business loan you apply for, arranging the facility can also be much quicker and easier than organising a comparable unsecured loan.
How do I get a 100% business loan?
While putting no money down might seem appealing, 100% financing is like getting on a roller coaster blindfolded—exciting but potentially risky. Lenders see your down payment as having some skin in the game. It shows you believe in the investment and are willing to share the responsibility. Skipping a down payment can raise red flags for lenders, making them wonder if you’re fully committed or might walk away if things get bumpy.
How do I qualify for a secured loan?
Secured loans are like borrowing money using your valuables as a safety deposit box. The lender holds onto your car, house, or other asset while you repay the loan. This assures them you’ll make good on your debt. Of course, if you miss payments, they have the key and can take back the asset to recoup their losses. Remember, secured loans require ownership of the collateral, so it’s not an option if you don’t already have that asset in your name.
What security do I need for a business loan?
The security you need for a business loan depends on the type of loan. Secured loans require putting up collateral, like property or equipment that the lender can seize if you default.