Secured business loans allow you to borrow more at lower rates by using collateral.
When you’re looking to grow your business, any amount of extra capital could come in handy. You’ve settled on a secured business loan, but what’s next? Learn what you can use as collateral and how securing your loan can benefit your business.
Our top pick: Excel Capital Management Small Business Loans
Our top pick: Excel Capital Management Small Business Loans
How does a secured business loan work?
A secured business loan requires that you put up some type of collateral against your loan should you default. This can be a piece of property, equipment for your business or any other expensive asset, either personal or commercial. By providing collateral, you may have access to lower interest rates and higher loan amounts than with an unsecured loan.
However, if you’re unable to make your loan payments on time, the lender has the right to seize your asset to cover your remaining debt and any other expenses that have accumulated since default.
Compare providers that offer secured business loans
| Provider | Collateral Required | Offer Details | |
|---|---|---|---|
| Excel Capital Management | Receivables or assets (commercial real estate, inventory or heavy equipment) | Loan options including split funding, term loans, equipment financing, invoice factoring, business lines of credit and more | |
| Funding Circle |
| Lines of credit with a max draw amount of $500,000 | |
| LendingClub | UCC lien on business assets is required for loans over $100,000 | Peer-to-peer lender offering small business loans up to $500,000 | |
| Main Street Finance Group | Assets (commercial real estate, inventory or heavy equipment) | Business financing up to $1,000,000 through merchant cash advances, long-term unsecured loans, equipment financing, and lines of credit | |
| OnDeck |
| Term loans up to $100,000 and lines of credit with a max draw amount of $500,000 | |
| Kabbage |
| Lines of credit with a max draw amount of $250,000 | |
| Accion | Personal guarantee | Microloans for small businesses with a max amount of $250,000 | |
| BlueVine |
| Lines of credit and invoice financing with a max amount of $5,000,000 | |
| Fundation |
| Lines of credit and business term loans with a max amount of $500,000 |
How a personal guarantee works
How can a secured loan benefit my business?
A secured loan means less risk for the lender. And less risk for the lender means a better deal for you. You can get access to larger loan amounts and lower interest rates. This is a great choice for established businesses with reliable cash flow to make regular payments.
Here’s the difference between secured and unsecured business loans
What can I use as collateral?
The assets most commonly used to secure a business loan are commercial and residential property. But realistically, anything of value can be put up as collateral. Depending on the lender and the amount you want to borrow, you may be able to use the following assets as security:
- Business inventory
- Business equipment
- Future invoices
- Personal vehicles
- Commercial vehicles
- Fine art and jewelry
- Personal savings
If you don’t have any of these assets and don’t own your property outright, you still could use these as collateral. You don’t necessarily need to own the property to offer it as security. Business equity loans allow you to access the equity you have in your personal or business property to get the funding you need.
How much collateral is needed for a business loan?
What are the risks of secured business loans?
The main risk of secured business loans is that if you default, your lender can repossess your asset. This could have serious consequences for the future of your business, especially if you used property as collateral. Even worse, if you listed a personal asset as collateral, you’ll lose more than just an important part of your business.
As with any other type of loan, you should always be wary of borrowing more than you can afford to repay. Be aware of how much regular payments are and the total cost of the loan once it’s fully paid off before you sign on the dotted line.
What businesses are eligible for secured loans?
Businesses that can provide collateral and have a history of repaying its debts will likely qualify for a secured loan, however you can set yours apart by making sure these points are strong:
- Business history. Most lenders require that your business be operating for at least six months, or up to two years in some cases.
- Business financial strength. Lenders assess your business’ profit and loss statements, average monthly turnover and income projections to determine if you can make your repayments.
- Appropriate asset. You’ll need a suitable asset to provide security for the amount you wish to borrow.
Application checklist
Secured business loans are different than secured personal loans and require a bit more upfront work. These five points should help guide you toward a loan your business will be able to repay.
- The value of your asset. No matter what your asset is, have it professionally appraised. This way, you’ll know how much your asset is worth and how much you should expect from your lender.
- Your business plan. Lenders want to see a business plan that details how you intend to use your loan. Without one, you’re unlikely to be approved.
- Credit scores. Lenders use both your personal and business credit scores to determine your interest rate and how much you can borrow — even with a secured loan.
- How much you need to borrow. In your business plan you should be able to determine how much you need to borrow. Too little could result in more loans in the future. And too much could put you in a poor financial position.
- How you plan on repaying. Most loan payments will be set to be paid monthly, though some require weekly, or even daily repayments. Before you sign on to a loan, know if your business can meet the monthly payments to avoid default.
Compare more business loans from top providers
Bottom line
A secured loan can be great for a business looking to expand or a new business wanting to buy property or expensive equipment. Although it comes with a certain amount of risk should your business default, the low rates and higher loan amounts make secured business loans a strong option for companies of all sizes. You can compare more business loan options to find a lender that suits your business needs.