Secured business loans

What is a secured business loan? 

A secured business loan is a type of business loan that is backed by security provided by the business.

Security, or collateral, for a secured business loan is an asset of value, such as property, machinery, or vehicles. The borrowing business pledges these assets to the lender to get the loan. If the business is unable to repay the loan, the lender has the right to seize and sell the assets to recover the outstanding debt.

Secured business loans are considered less risky for lenders because they have a tangible asset to fall back on if the borrower defaults on the loan. This reduced risk often results in lower interest rates and more favourable terms. 

Because of the reduced risk for the lender, secured loans may be easier to qualify for compared to unsecured loans, especially for businesses with limited credit history or financial stability.

Bear in mind that while secured business loans can provide access to larger loan amounts and better terms, there's also some risk involved. If the business is unable to meet its loan repayments, it could lose the asset used as collateral.

How do secured business loans work?

A secured business loan works by using an asset as a means for a business to access more cash. The value of the asset you want to use should be sufficient to cover the amount you want to borrow. 

When you apply for a secured business loan, the lender will carry out a valuation of the asset to ensure that it would cover the loan amount in case the lender needed to sell the asset if the business defaults.

The lender will also likely require some documentation such as your business bank statements and financial statements, as well as checking your business credit score.

Once approved for a secured business loan, you will receive the funds into your business bank account. You will then start to repay the secured business loan, including any interest and arrangement fees, usually on a monthly basis.

Once the loan is repaid in full, you will retain full ownership of the asset. 

If you were unable to repay the loan according to the agreed-upon terms, the lender does have the right to take possession of the collateral and sell it to recover the outstanding debt. This process is known as foreclosure or repossession.

What can I use a secured business loan for?

Secured business loans can be used for various purposes. Here are some common uses for secured business loans:

• Fund the expansion of your business, such as opening new locations, increasing your production capacity, or entering new markets.

• Secured loans are often used to buy or upgrade equipment and machinery that is essential for your business operations, such as manufacturing equipment, vehicles, or technology.

• If your business needs a boost in working capital to manage day-to-day operations, a secured loan can provide the necessary funds.

• If your business is seasonal or experiences fluctuations in demand, a secured loan can help you maintain sufficient inventory levels to meet customer needs.

• Acquire, construct, or renovate commercial properties, such as offices, warehouses, or retail spaces.

• If your business has multiple high-interest loans or debts, you can use a secured loan to consolidate them into a single, more manageable payment with potentially lower interest rates.

• Invest in marketing and advertising campaigns to promote your products or services and attract new customers.

• If your business is growing, you might need to hire more employees or provide training for your existing staff. A secured loan can help cover the associated costs.