The Bionic guide to secured business loans

All small businesses will need financing at some point, whether that’s to get started or to expand and take advantage of new opportunities. And there are seemingly endless choices when it comes to what type of funding to go for.

For a business that holds valuable assets, a secured business loan can be a great option for relatively cheap borrowing. 

This guide will explain what a secured business loan is, show you how to get one, and help you find the right deal for your business.

What is a secured business loan? 

A secured business loan is a type of borrowing where your business provides an asset to use as security against the loan. That means that a lender will be able to offer better repayment terms because the asset is used as a form of guarantee by the borrower.

Typically, business loans are secured against property, equipment, stock, land or anything else of value that you or your business might own. Because the security reduces the risk for lenders, a business can often borrow more money in this way or get a more favourable interest rate.

What can a secured business loan be used for?

A secured business loan can be used for anything that any other type of business financing could be used for. In other words, there are no absolute restrictions on how to spend the funding that you can access via a secured business loan.

However, a lender may want to know what you plan to spend the money on before they agree to lend it to you and on what terms. Typically, a secured business loan might be used to help you grow your business, for example by investing in new equipment or extra staffing.

Is your business eligible for secured business loans in the UK? 

If you or your business owns any assets, you are likely to be eligible for a secured business loan in the UK, especially if you own property that you are prepared to put up as security.

However, you still need to meet an individual lender’s own eligibility criteria. These usually include criteria related to your business’s annual turnover, trading history, type of business, and your own credit history.

Can you get a secured business loan with poor credit?

Yes, you can get a secured business loan with poor credit, but your credit rating could count against you when negotiating interest rates.

That said, a secured loan is arguably the easiest type of business loan to get if you don’t have a good credit rating, because you will be using your assets to guarantee the borrowing. This means that lenders will have a degree of reassurance about lending to your business, but it also means you could be liable to lose any assets you use as security should you be unable to make your loan repayments. 

How does a secured loan for a small business work?

Secured loans for small businesses work in very similar ways to most other types of business lending. A lender, which could be a bank or non-traditional lender, will lend a certain amount to a business, based on the business’s needs and how much security it can put up to guarantee the loan. The business will then pay back the loan in monthly instalments, at an interest rate agreed in advance.

How much you can borrow, over how many months, and at what rate are all dependent on how much risk the lender perceives you to be as a borrower.

If you fail to make repayments, the lender might claim ownership of the assets - such as property - that you put up as security.

What assets can be used as security on a business loan?

Pretty much anything can be potentially used as security to guarantee a business loan, as long as it has value. However, there are certain assets that tend to be used for this purpose. The most common asset is property - this can be either personal property or property that is owned by your business.

Other common assets used as security include manufacturing equipment, machinery, vehicles or land. Some lenders will allow you to use cash as security. However, cash secured business loans are likely to have different terms attached compared to those secured with property.

What are the pros and cons of getting a secured business loan?

A secured loan can be a great option for a small business that owns assets and is looking to get financing. That’s because secured loans are generally cheaper than many other types of business borrowing. It is also often the case that you can borrow more if you are using assets as security.

Another potential advantage for some businesses is that there is less need to prove you have a solid trading history or good credit rating, as the asset you use will guarantee the loan for the lender. That is why secured business loans are often a good option for startups.

An obvious disadvantage of a secured business loan is that you are in danger of losing the asset you put up as security if you can’t make your monthly repayments. That is why they are not suitable for all businesses.

Sometimes, secured loans can take longer to arrange than other types of financing, so they may not be your best option if you need funds quickly.

How to get a secured business loan

To get a secured business loan, your business will have to meet certain requirements set by your lender. A lender will want to assess the value of the asset you put up as security, know what you are borrowing money for, and check the trading history of your business.

However, as previously stated, having a high value asset to use as security will mean lenders are less concerned about your trading history than they might be for other types of lending.

What are the alternatives to secured business loans?

There are of course many alternative financing options if you are unable or unwilling to get a secured business loan. 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.

There are also shorter term borrowing options, such as invoice financing, business credit cards, or a bank overdraft.

How to find a business loan with Bionic

Whatever type of small business loan you need, at Bionic we can help you find it. Our team of financing experts use our specialist technology to scour deals and offers from thousands of lenders.

We will do our best to match you with a loan that suits the unique needs of your business. So give us a call today to tell us about your business and let us do the rest.