Secured business loans

Secured loans for small businesses work much the same as most other types of business lending.

A lender, which could be a high street bank, challenger bank or alternative lender, will allow your business to borrow a certain amount. The amount you can borrow and the terms you’re offered will be based on your needs and how much security you can put up to guarantee the loan. Your business will then pay back the loan in monthly instalments, at an interest rate that’s been agreed in advance.

How much you can borrow, over how many months, and at what rate are all dependent on how much of a risk the lender considers you to be. When working out risk, lenders will look at things like the type of business you run and how long you’ve been trading, along with the information held on your credit file.

If you fail to make repayments on a secured business loan, the lender might claim ownership of any assets that you put up as security.

Secured business loans are often any purpose loans, which means they can be used for any legitimate business expense.

But before they’ll agree to lend to you, your lender might want to know what you plan to spend the money on. This can also affect the terms of the loan. Typically, a secured business loan might be used to help you grow your business, for example by investing in new equipment or extra staffing.

In theory, any asset with value can be used as security to guarantee a business loan. But there are certain assets that tend to be used more than most, including manufacturing equipment, machinery, vehicles, or even land.

Some lenders will allow you to use cash as security. But cash secured business loans are likely to have different terms attached compared to those secured against assets.

Property can also be used as security on a business loan, and your lender might consider both personal property and property that is owned by your business. But bear in mind that using your home as security can be a risk as you could lose the house you live in if you can’t keep up with repayments.

If you put up a mortgaged commercial property or land as security, the lender can register this in one of two ways:

• A legal charge gives the lender the authority to sell your property if you can’t keep up with repayments. This process can be time-consuming as the lender will need to get the nod from the mortgage provider, and this isn’t always a given.
• An equitable charge means the lender doesn’t have the power to sell your property, they can get a court order to do so if you can’t keep up with repayments. This often gives the lender enough security to approve the loan.

A secured loan could be an option if your small business owns assets and is looking to get finance. 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 an option for startups or businesses with a poor credit rating.

A 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.