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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.
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.
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 | ||
Lien on business assetsPersonal guarantee from primary business owners | Lines of credit with a max draw amount of $500,000 | ||
UCC lien on business assets is required for loans over $100,000 | Peer-to-peer lender offering small business loans up to $500,000 | ||
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 | ||
General lien on business assetsPersonal guarantee | Term loans up to $100,000 and lines of credit with a max draw amount of $250,000 | ||
Personal guaranteeGeneral lien on your business assets (in certain cases only) | Lines of credit with a max draw amount of $250,000 | ||
Personal guarantee | Microloans for small businesses with a max amount of $250,000 | ||
General lien on business assetsPersonal guarantee | Lines of credit and invoice financing with a max amount of $5,000,000 | ||
Personal guaranteeUCC-1 on business assets | Lines of credit and business term loans with a max amount of $500,000 |
How a personal guarantee works
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
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:
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?
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.
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:
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.
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.
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