Secured business loans

Secured business loans are types of secured finance designed for businesses that own commercial property, vehicles, machinery or other business assets, and can be used by directors who don’t want to offer a personal guarantee. There’s a range of options to choose from and the amount you can borrow depends on the value of the assets you’re using as security. 

Secured business loan
Secured business loans

What is a secured business loan?

Also known as asset-backed lending, secured business loans enable a business owner to access funds by providing an asset, such as commercial property, as security. Security reduces the risk to the lender, which means interest rates and repayment terms tend to be more competitive than those attached to unsecured business loans. 

You’re less likely to have to provide a personal guarantee, and the lender might not look too deeply into your credit history. However, it’s important to know that if you don’t repay the loan the lender could sell your business assets to recover the funds. 

How do secured business loans work?

Secured business loans work in a similar way to other types of business finance. The lender will agree to lend you a sum to your company based on the value of the business assets you’re using as security, and your business’ circumstances and needs. 

Depending on the lender and the complexity of your business’ situation, the process could take up to several weeks. Your assets will have to be valued and if you’re offering a property as security, the lender will probably place a legal charge on it. 

Most secured business loans come with fixed interest rates, so you can expect to repay the loan amount (plus interest) on a monthly basis. Depending on your needs and eligibility, you can opt for a short, medium or long-term secured business loan. The majority of lenders will lend up to 100% of the value of your asset.

What assets can I use as security?

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 sectors. Common tangible assets include property, land, machinery, equipment and vehicles. You can even secure your accounts receivables against a loan.

Intangible assets include trademarks, copyrights, intellectual property, licences and patents. Depending on the lender, you might be able to offer multiple assets or your own personal assets. A personal guarantee might also be required. 

How do secured and unsecured business loans differ?

As the term suggests, an unsecured business loan doesn't require you to offer business assets as security. However, the lender still needs to feel confident in order to lend, so they will look closely at your credit ratings and trading history. 

As a type of finance, unsecured loans can be suitable for businesses that don’t have assets, would prefer not to offer security, or are growing fast and need finance straightaway.

Unlike a secured business loan, which is informed by the value of the asset offered as security, the amount you can borrow through an unsecured loan 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 high. When it comes to 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. 

Unsecured business loans

Secured business loan pros

Here are some of the advantages of secured business loans:

Lower interest rates

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

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Larger sums

Larger amounts tend to be available through secured business finance: it very much depends 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

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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.

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Less focus on trading/credit history

Because your business assets are acting at the guarantee, the lender may be more flexible when looking at your trading history and credit history. For this reason, secured finance can be a viable option for startups that haven't been trading for long or companies that don’t have a perfect credit file. A personal guarantee might be required.

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Secured business loan cons

Here are a few things to consider before you opt for a secured business loan:

Assets

You can’t get a secured business loan if you don’t have the asset to offer as security. Even if you do have assets, are you willing to offer them as security? Remember that if you don’t repay the lender can sell the asset to recoup the costs. To understand more about asset finance and your options, read our dedicated guide below.

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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 also legal fees if the lender puts a legal charge on it. You’ll still have to pay the valuation fee if your loan is declined or you end up getting a smaller amount.

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Speed

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 business paperwork together i.e. companies house registration number, business accounts and forecasts, registered office address, etc. when you apply to avoid any unnecessary delays.

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Alternatives to secured business loans

If you are unable or unwilling to get a secured business loan, there are many alternative financing options. You could opt for an unsecured loan, which might be more expensive in terms of interest but does not require you to use assets as security.

In this case, you should consider shorter-term borrowing options, such as invoice financing, business credit cards, an overdraft or revolving credit facilities.

Additionally, if the coronavirus pandemic has negatively impacted your business, you may be eligible for the Recovery Loan Scheme. Launched on 6 April 2021 and running until 30 June 2022. Administrated by the British Business Bank, the scheme supports access to finance for UK businesses as they recover and grow following the Covid-19 pandemic. To receive funding, you’ll need to meet the following criteria:

  • A limited company that has been impacted by the coronavirus pandemic

  • Minimum of 2 years’ trading history

  • Business is trading in the UK

  • Loan is to be used for business purposes (i.e. working capital or investment)

  • Annual turnover under £45 million p/a

Recovery Loan Scheme Guide

Where can I apply for a secured business loan?

You can use the Funding Options platform to apply for a secured loan from a reputable credit broker today. 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 our technology will compare 120+ lenders to match your business with the right finance options for its needs.

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Secured Business Loan

Check your eligibility with our online form without affecting your credit score.

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