What is a Secured Business Loan?
A secured business loan is a type of loan where a borrower pledges collateral to secure the funds they borrow. Collateral can be any valuable asset owned by the business, such as real estate, equipment, inventory, or accounts receivable. By providing collateral, the borrower reduces the lender’s risk, making obtaining the loan easier and potentially securing more favourable terms.
How Does a Secured Business Loan Work?
When you apply for a secured business loan, the lender assesses the value of the collateral you are offering. This evaluation helps determine the maximum amount you can borrow, which is usually a percentage of the collateral’s value. Suppose your business fails to repay the loan as agreed. In that case, the lender has the right to seize and sell the collateral to recover the outstanding debt.
Eligibility & Requirements for a Secured Business Loan
Secured business loans come with specific eligibility criteria and requirements that businesses must meet to qualify for this type of financing. Understanding these factors will help determine if your business is eligible and adequately prepared to apply for a secured loan. Here are the common eligibility requirements for securing a business loan you might encounter depending on your chosen lender:
- Sufficient collateral
- Demonstrated business stability
- Good credit score
- Financial statements
- Business plan
- Personal guarantee
The Difference Between a Secured & Unsecured Business Loan
Secured and unsecured business loans differ in one crucial aspect: collateral. A secured loan requires you to provide valuable assets, like equipment or property, as security for the loan. This reduces the lender’s risk and can lead to lower interest rates and higher loan amounts. If you can’t repay the loan, the lender has the right to take and sell the collateral.
On the other hand, an unsecured loan doesn’t require collateral but relies heavily on your creditworthiness. These loans can be harder to qualify for, may have higher interest rates, and offer smaller loan amounts. Choosing between the two depends on factors like your credit history, available assets, and loan needs.
Find out more about unsecured business loans today.
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What are the Advantages of a Secured Business Loan?
With a secured business loan, you can look forward to various advantages and benefits for your business. From a greater chance of success with your application to a larger potential loan with better terms, we have broken down the advantages of secured business loans you should consider.
Higher Approval Rates:
Compared to unsecured loans, secured loans have higher approval rates because the collateral acts as a form of security for the lender. If you have less-than-perfect credit or limited operating history, a secured loan might be more accessible than other financing options.
Lower Interest Rates:
Secured loans typically come with lower interest rates compared to unsecured loans. Since the lender faces less risk, they can offer more competitive rates, resulting in lower monthly payments and potentially saving your business money in the long run.
Larger Loan Amounts:
The availability of collateral allows you to secure larger loan amounts. This can be beneficial when you need substantial funding for expansion plans, purchasing equipment, or launching new products or services.
Longer Repayment Terms:
Secured loans often come with longer repayment terms, allowing you to spread out the loan payments over a more extended period. This can reduce the strain on your business’s cash flow and provide more flexibility in managing your finances.
Secure your Business Loan with Portman
Ready to explore your options for a secured business loan? Our team is here to help.
At Portman, we understand the unique needs of businesses and can guide you through the process of obtaining the financing you need. Whether you have questions about collateral, eligibility criteria, or loan terms, we’re here to provide personalised assistance. Get in touch with us today to discuss your specific requirements and find the secured loan solution for your business’s growth and success.
Can I get a secured business loan with bad credit?
Getting a secured business loan with bad credit can be challenging but not impossible. It depends on the value of the collateral you can provide and its evaluation by the lender. Having valuable collateral can offset the impact of bad credit. Additionally, alternative lenders may offer more flexible options. However, it’s important to consider higher interest rates and assess your ability to repay the loan. Seeking guidance from lenders or a financial advisor can improve your chances of securing a loan despite bad credit.
Are there any risks with a secured loan?
While secured business loans offer significant advantages, it’s important to consider potential risks:
- Asset Risk: By pledging collateral, you are putting the associated assets at risk. If your business fails to repay the loan, the lender can seize and sell the collateral, potentially resulting in a loss for your business.
- Responsible Borrowing: Remember that a secured loan is a financial obligation. It is essential to evaluate your business’s ability to make timely loan repayments before committing to borrowing.
- Collateral Valuation: The loan amount you receive depends on the value of the collateral. It’s crucial to understand your assets’ worth and ensure they align with your funding needs.
What can be used as collateral for a secured business loan?
Collateral for a secured business loan can include real estate, equipment, inventory, accounts receivable, securities, or cash savings. These assets serve as security for the loan, and the lender assesses their value. The specific collateral options and their evaluation process may vary among lenders. It’s important to carefully consider the assets you pledge as collateral since they can be at risk if the loan is not repaid.
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