Secured Business Loan

What Is A Secured Business Loan?

Pledging an asset as collateral for a secured term loan means that the lender can take possession of the asset if you cannot meet your agreed repayments and default on the loan. The key feature of a secured loan is that it is backed by collateral as part of the lending agreement. Lenders will charge a lower interest rate and provide the facility for a longer time relative to other business loan products as secured term loans are inherently less risky as the lender has a relatively clear way to recover any potential losses by taking possession of the asset.

Pros & Cons Of Secured Business Loans

Pros

Con

Benefits Of A Secured Business Loan

Pledging an asset as collateral for a secured term loan means that the lender can take possession of the asset if you cannot meet your agreed repayments and default on the loan. The key feature of a secured loan is that it is backed by collateral as part of the lending agreement. Lenders will charge a lower interest rate and provide the facility for a longer time relative to other business loan products as secured term loans are inherently less risky as the lender has a relatively clear way to recover any potential losses by taking possession of the asset.

One of the main benefits of a secured business loan is a lower interest rate. Secured business loan interest rates are typically lower than unsecured business loans. This is because the use of collateral as security reduces lender’s risk, which means that they can offer lower rates.

Because secured business loans are less risky for lenders, it is typically easier for businesses to apply and obtain a secured loan than an unsecured business loan.

If you are looking for a larger loan amount, a secured business loan is your best bet. Secured loans mitigate the risk for the lender, allowing them to provide a larger loan amount at a relatively lower cost.

Drawbacks Of A Secured Term Loan

The consequence of offering an asset to use as collateral for your loan means that if you default, then it could result in the asset being seized by the lender and sold off. This is done so the lender recuperates the amount of their loan and therefore minimises their losses.

When providing an asset as security, you have to be careful and be 100% sure that you will be able to pay back the loan so that you will not have worry about losing the asset. Also be sure to look out for are any fees attached to the facility. Secured term loan facilities can often come with early repayment fees if you pay back the loan early. Lenders will often include this fee as a way of profiting from the loan in the event that they don’t receive the expected course of interest payments because the loan is paid off early.

Secured Business Loans Vs Unsecured Business Loans?

While secured business loans require that you use an asset as collateral for your loan, an unsecured business loan doesn’t require security. Secure business loans reward you for providing security with lower interest rates and longer repayment terms, whereas unsecured business loans typically have higher rates and shorter terms.

Which one you should choose depends on whether or not you have an asset that you are willing to put up as security. Other factors to consider include your credit rating, the repayment period you require, how long you have been trading, and how quickly you need the funds.

If you would like to determine which type of business loan will work best for your business and see what rate you can expect to pay, use our free loan wizard – answer a few questions, and get an answer in under 2 minutes.

Applying For A Secured Business Loan

In order to provide approval for a secured business loan, lenders will need to be comfortable that the asset will provide enough value to cover the value of the loan in the event of a default. To assess the suitability of the asset and the health of your business, lenders will often require you to provide a combination of the below as part of a secured term loan application:

  • Details on any income the asset generates
  • Copies of all sales & transfer documents to prove ownership
  • Details on any existing claims over the asset (i.e., is part of it being used as security for another loan or does anyone else have a potential claim on ownership of the asset)
  • Details of any registered valuation that has been completed on the asset
  • Details of any insurance policies taken out on the asset

Frequently Asked Questions

What can I use as security?

The most common asset to use as security is commercial or residential property. Some lenders will also allow you to borrow against other assets such as vehicles, your savings, business equipment or other valuable items.

Can I sell the asset I used as security?
In order to sell the asset that you are using as security you will need to get the lenders approval. They may or may not allow you to secure you loan against another asset, depending on your individual circumstances.

How do I apply for a secured business loan?
Begin by finding the right lender, loan and rate. You can do this by talking to one of our lending specialists on 1300 569 422

What if I don’t have an asset?
If you don’t have real estate or a physical asset to offer as security, you could explore using savings, invoices, or guarantees. Alternatively, you can explore your unsecured loan options.

Can I get a secured business loan with bad credit?
While many of the large banks may be hesitant to offer funding to businesses with a bad credit history, alternative lenders may still be an option. What is considered a “bad credit score” differs from lender to lender and is one of many factors that is evaluated in your application, so just because you have low credit score does not mean you do not qualify for a secure business loan.

What is the secured business loan interest rate?
Interest rates differ from lender to lender and business to business. Factors that will influence your interest rate include your cashflow, repayment terms, credit history, collateral value and more.