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Secured business loans

Get access to a lower rate by using an asset as collateral on a secured business loan.

If you’re looking to grow your business or survive a downturn and also own a suitable asset, you can use it as security on a business loan and get a more competitive interest rate.

Find out how it works, if it’s right for your business and compare business loans below.

What is a secured business loan?

A secured business loan is a type of business finance that uses an asset you own as security against the loan. If you fail to repay the loan, the lender can then take ownership of the asset to cover the cost of the loan, reducing its risk. As a result, you will generally get more-favourable terms, such as a lower interest rate and the ability to borrow a larger amount. Commercial and residential properties are commonly used as security, but you may also be able to use a piece of equipment or other asset depending on the lender.

So if you run an established business, own one or more valuable assets and you want to borrow a large amount of money, a secured business loan could be the perfect choice.

If you don’t have an asset you’d like to use as security for a business loan, you may consider an unsecured business loan.

What do you need as security?

When you offer an asset as collateral for a business loan, the loan is secured by the residual value of that asset. While this can help you access funding with more-favourable terms, it also means that you may forfeit the asset to the lender if you can’t make on-time loan repayments.

The assets most commonly used to secure a business loan are:

  • Commercial property
  • Residential property

You don’t necessarily need to own the property outright in order to offer it as security, as business equity loans allow you to access the equity you have in your personal or business property to get the funding you need.

Depending on the lender and the amount you wish to borrow, you may be able to use other assets too.

Other assets to secure a business loan include, but not limited to:

  • Vehicles
  • Business equipment or other fixed assets
  • Fine art or jewellery
  • Appliances and valuable musical instruments

What are the risks of secured business loans?

The major risk with a secured business loan is that if you default on the repayments, the asset you offer as security could be repossessed by the lender. This could have serious consequences for the future of your business or, if you listed personal property as collateral, could potentially hit even closer to home.

As with any other type of loan, you should always be wary of borrowing more than you can afford to repay. Make sure you’re aware of how much the regular repayment amount is, as well as what the total cost of the loan will be once it is fully paid off, before you access any financing.

How can you compare secured business loans?

Consider the following features when weighing up your loan options:

  • Interest rates. This is a key feature when calculating the total cost of a loan. There are fixed- and variable-rate secured business loans available and it’s worth shopping around to find a competitive rate.
  • Loan fees. Check the fine print for details of any up-front and ongoing loan fees, as well as any fees that apply to late or missed payments.
  • Minimum loan amount. Loan amounts vary depending on the lender, your financial situation and the asset you offer to secure the loan. However, check that any minimum loan limit that applies is suitable for your needs.
  • Asset type. While many lenders will allow you to use either a residential or a commercial property as security for your loan, some will require you to use one or the other.
  • Repayment schedule. How much will the regular repayment amount be and can the repayment schedule be tailored to suit your business cash flow?
  • Repayment flexibility. Can you make additional repayments at any time if your business comes into some additional funds? Is there any penalty for paying the loan off early?

What businesses are eligible for these types of loans?

The exact criteria you’ll need to satisfy to qualify for a secured business loan will vary between lenders and depending on the amount you wish to borrow. However, you’ll typically need to meet the following requirements:

  • Business history. Most lenders will require you to have been in business for a specified minimum period, such as six months or two years.
  • Business financial strength. Lenders will assess the average monthly turnover of your business as well as profit and loss statements and income projections to determine your repayment capacity.
  • Asset requirement. You’ll need to own suitable collateral to provide sufficient security for the amount you wish to borrow.

Eligibility criteria vary greatly depending on the loan you apply for, so make sure you’re aware of all the necessary requirements before you apply.

Frequently asked questions about secured business loans

Who offers secured business loans?

Secured business loans are most commonly offered by banks and traditional lenders, but some short term secured loans are also available from alternative lenders.

What if I want to sell the asset that I used to secure my loan during the loan term?

You will need to get your lender’s approval to sell the asset and offer another acceptable form of collateral to take its place.

What if I don’t have any assets I can offer as security?

You may need to consider your options for unsecured business loans.

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