A secured business loan allows to you to access finance by offering up an asset such as property as security against the amount you borrow
If you’re a UK business with assets and you’re looking for capital to grow, then securing a business loan against one or more your assets could be the ideal way to raise the funding you need. This means you will be more likely to be approved for a secured loan, as well as be offered lower interest rates, longer terms, and larger loans for your business. Between the banks and the alternative finance market, there is a broad range of lenders in the UK, each offering a variety of lending products.
What is a secured business loan?
A secured business loan allows you to use an asset – or the total value of multiple assets – as security against the amount you borrow. The lender uses your asset(s) as a form of guarantee and is therefore often able to offer better repayment terms than you’d find with an unsecured loan.
Business loans are typically secured against property, equipment, machinery or land – but lenders might use any high-value assets that either you or your business might own. There are other types of secured lending though. For example, invoice finance allows you to use your invoices and accounts receivable (i.e. money owed to your business) as security for a loan.
With a secured loan, the security reduces the risk for lenders, therefore increasing your chances of getting a loan, but also allowing you to borrow more money, for a longer term – and you’ll be offered better interest rates compared to those for an unsecured loan.
If you’re looking to grow your business, perhaps by investing in new equipment or taking on additional staff, there are many banks and non-traditional (alternative finance) lenders who can offer your business funds. If you like the idea of fixed, monthly repayments within an agreed time frame, a business loan (whether secured or unsecured) could be your best option.
How do secured business loans work?
Secured business loans work in very similar ways to most other types of business lending. The lender will agree to lend your business a certain amount, based on your needs and how much security you can put up to guarantee the loan.
(This is in contrast to an unsecured https://www.paydayloansohio.net/cities/alliance/ business loan, where the lender will typically specify the loan amount as a multiple of your annual business turnover.)
The process is a bit like applying for a mortgage and may take several weeks, depending on the complexity of your situation – the lender will have to value any assets you’re putting up as security. In addition, if you’re using property as security, the lender is likely to place a legal charge on the property.
You receive your cash and subsequently repay your loan in monthly instalments over a fixed time frame. You can choose to take out a short-term loan or medium/long-term loan (i.e. ‘term’ loan), depending on your business needs.
If you fail to make the repayments, the lender might claim ownership of the assets that you put up as security and use this to recover the funds.
Secured business loan example
- You apply for a loan for ?200,000 and offer the lender your commercial property as security against the loan.
- The lender assesses the application and gives a conditional offer, reliant on an independent valuation confirming the property’s value and suitability as security