Secured business loans are, as the name suggests, a loan which is backed up by a security. This will usually be a valuable asset that your business owns, such as a home. This allows the lender to have security if the loan is unable to be paid back.
As a result secured loans are higher-value business loans because they are less risky for the lender. This means that they usually have cheaper interest rates. However, as the borrower, they are riskier, as if you cannot make a repayment, then your asset can be repossessed.
Secured loans can also be referred to as home equity loans, second charge mortgages, first charge mortgages, asset-based lending or debt consolidation loans.
Who is it suitable for?
A secured business loan is ideal for a business that has a lot of capital tied up in assets. For example, a manufacturing company that has gaps in cash flow but has the equipment and commercial buildings.
The criteria are relatively straightforward with this product, if your business owns any assets you are likely to be eligible.
A lender would look more favorably on tangible assets, simply because it is easier to value and they would be able to recoup their losses easier if needed. In general, businesses with solid trading histories and assets available to put up as collateral are best suited.
How Much Does It Cost?
Secured loans are less risky for lenders as they are secured against an asset, so they are generally cheaper than unsecured loans. But, because the lender can repossess the security, such as your home, they can be riskier for the borrower.
Most secured loans have a variable rate which may possibly rise. The rate you’re offered may depend on how much you want to borrow, your credit score, how long you want to borrow for and the value of the security.