Article – What is a Secured Business Loan?

A business loan is where a company can borrow capital from a lender body and repay it with interest over an agreed period.

This is a very common method of raising finance and one that most companies investigate first. Business loans are very adaptable and can be applied to a wide range of needs, from boosting capital reserves, to covering major business expenses, such as new equipment and marketing campaigns. Due to this appetite for lending, there are many different types of business loans, depending on what you want to do with the funds.

All business loans are either secured or unsecured, in this blog we are going to look at Secured Loans.

Secured Business Loans

A secured loan is a type of business loan which allows a business to borrow money by using an asset as security.

What does this mean?

Essentially, if the business is unable to repay the debt owed to the lender, they have the right to repossess the assets that are secured against the loan as collateral and recover their funds. Usually, property is used as security, alternatively, other assets such as equipment, stocks and shares can be used.

Due to the security offered, the process is less risky for lenders as they have more confidence their money is going to be repaid. This results in more favourable terms including lower interest rates and higher borrowing amounts. This mean secured loans are generally more accessible for start-ups that may struggle to get funding and also for more established businesses that tend to have assets, meaning they can get access higher levels of funding, with lower fixed costs over a longer term.

Which type of assets can be used for a Secured Business Loan?

Many different types of assets can be used as collateral for a secured business loan. They are generally either tangible or intangible.

What are tangible assets?

A tangible asset are possessions that have a physical presence and can be touched.

For example, property, land, equipment, vehicles, and stock.

What are intangible assets?

An intangible asset is a possession with no physical presence (and so cannot be touched). Criteria for these to be included on a balance sheet are that it must be identifiable, controlled (as a result of a past events), and measurable). These are generally harder to value so may only be covered by specialist lenders.

Examples include trademarks, copyrights, and intellectual property.

What are the Benefits of a Secured Business Loan?

Larger Loans Available

The loan amount available to borrow is partly determined by the amount decided to put down as security by the business. So, the more valuable the asset and therefore collateral, the larger the loan is available to borrow.

Lower Interest Rates

As mentioned, due to the lower risk levels for lenders because of the collateral offered, it is likely that the business will be offered a more affordable interest rate compared to an unsecured loan.

Longer Repayment Terms

Secured loans also come with the benefit of longer repayment terms. This gives businesses the flexibility to manage the loans and budget their working capital with ease, allowing focus on growth and development.

Short Trading History

A secured loan can be favoured for new businesses without a long track record. As an asset is being put down as security, this gives potential lenders the confidence to lend as the risk factor is reduced, and they have something to fall back on.

Credit History

Similarly, to having a short trading history, a good credit history is not as important. This is because the lender knows that they have the security of the assets if repayments are not met.

Key considerations of a Secured Loan

Assets are at Risk

This is the most obvious risk to a secured loan. Due to providing assets as security those are then placed at the risk of being lost due to collateral if the business is unable to repay the loan.

Longer Application Processes

It is likely the application for a secured business loan will take longer than an unsecured loan. This is because the lender will have to evaluate and consider what has been put down as security before accepting the application.

Fees

There may be fees upfront, such as valuation fees and legal fees before the loan is processed. If there are issues, or if the asset does not meet expectations, this could mean the loan is declined.

Longer Overall Costs

Although a longer length loan can be beneficial for a company to manage loans, you do need to consider the additional interest that will accumulate over the loan period.

How do I get a Secured Business Loan?

There are some factors which your business needs to consider in order to get a business loan. These are necessary for the supplier to get the knowledge they need to assess the application and increase your viability for getting a secured business loan.

• How will you use the business loan?
• What assets do you have to secure against the loan?
• Can you afford the repayments?

Contact Us – The Best Finance Group

If you have any questions about secured business loans (or any other form of business finance), our dedicated and knowledgeable team are here to help. We will listen to your requirements and guide you through the options available.