Business Loans Guide
Secured Business Loans
A guide to taking out a secured business loan
Secured business loans typically require the business to provide security in the form of company assets. The loan is secured against assets to minimise the risk to the lender, if the business is unable to make the repayments.
What are the differences between secured and unsecured loans?
The main difference is that secured business loans require security, which is usually provided in the form of a physical asset. Every lender is different so not all will require the same security on their collateral loans. It is important that the value of the assets you are able to provide as security meet the amount of the secured business loan.
In addition to providing assets as collateral, a director or shareholder may also need to provide a personal guarantee. This will depend on the status of your business but will usually apply to limited companies and limited liability partnerships (LLP). However, the security provided by the assets will improve the confidence the lender has in the business, so often a personal guarantee or strong credit history is not required.
If you are a sole trader or operate a partnership you are automatically personally liable for the loan. Alternatively, if your business does not have the assets or you do not want to use them as security, an unsecured business loan could be a great option.
What are the benefits of secured business loans?
If your business needs to borrow a large amount, in most situations you will be able to borrow a larger amount with a secured business loan. There are a number of lenders which specialise in offering secured business loans, with the amount available only limited by the value of the assets you are able to provide as security. Secured business loans are a popular way to unlock the cash tied up in your business’ assets.
As the secured loan represents a lower risk to the lender, they can also be more flexible with the loan terms, through competitive interest rates and longer repayment periods.
With secured business loans bad credit is not always an issue, as lenders have an improved chance of recovering their loans against the business’ assets. If your business own assets but is just starting out or has struggled with finances in the past, a secured business loan could provide the essential funding your business requires.
What are the disadvantages of secured business loans?
The main disadvantage of a secured business loan is the risk associated with providing assets as security. The most common assets which a lender will use for security include commercial property, machinery, stock, fixtures and fittings and also vehicles. If your business does default on the loan repayments and assets are seized it can make trading very difficult, especially if the asset is required in daily business activities.
Typical uses for a secured business loan
There are many reasons why businesses take out secured loans, from the purchase of new property and machinery, to financing refurbishments or a large marketing project. In many situations a business will be looking to expand to take advantage of a new opportunity which requires a significant sum of capital. If the plans are unexpected not all businesses have the funds in place, so a secured business loan can provide the perfect solution.
Legal and equitable charges
If a business loan is secured against property, the lender will register either an equitable or legal charge. The type of charge registered will depend on whether the owner of the property is able to make a disposition without the prior consent of the existing mortgage provider or lender.
If there is no restriction the lender is likely to register a legal charge, which gives the loan provider the power to sell the property if the borrower defaults on the loan. However, if a legal charge is already in place the lender will need to gain consent from the existing mortgage provider or lender.
This can take a number of weeks, so to speed up the secured business loan application some lenders will choose to register an equitable charge. This will not give the loan provider the ability to sell the property, although it will still provide some security and will mean the funds are available to you in days rather than weeks.
Compare secure loans
Our secured loan comparison tool is designed to provide you with a list of lenders which match your specific requirements. By entering details such as the loan amount required, repayment period and your turnover, our business loan calculator will search our panel of lenders for both unsecured and secured business finance.
Our panel of lenders include traditional high street banks and providers of more alternative forms of lenders, such as peer to peer loans. If you are searching for a secured business loan, our comparison tool will provide you with fast secured business loans which could give you the finance you need within just 24 hours.
Will I qualify for a secured business loan?
Once you have a list of possible providers of secured business loans, you will be able to examine the criteria of each lender. The majority of lenders will want to gain an in-depth understanding of the financial aspects of your business, alongside your plans for the future of the business.
The most important criteria to meet is the capacity to be able to afford the monthly loan repayments. If you have financial details such as your annual turnover, balance sheet, profit and loss statement and accounts receivable and payable, the lender will be given a clear snapshot of your financial position.
This information should be supported by a solid business plan which outlines why you are looking for the loan and the financial projections for the future. You should also have proof of the value of all assets which will be provided as security for the loan.
By working with some of the most flexible providers of secured business lending, we are able to assist with finding the finance required for businesses of all financial backgrounds. If your business can demonstrate a commitment to repaying the debt, a sound business plan and the willingness to provide security against the loan, there is a strong chance of finding a secured business loan.
Calculating the value of your assets
As part of the loan application you will need to know the value of your business assets, as this will largely dictate the amount you are able to lend. To speed up your application for a secured business loan you should provide a detailed record of all business assets.
It is important not to overvalue the assets for the purposes of the loan application, as the lender is also likely to conduct their own assessment of asset value. By providing an honest and well-maintained asset record it will assure the lender that you are committed to the loan agreement.
To find out more about taking out an unsecured or secured business loan, please contact our experienced team. We will be happy to guide you through the available options and discuss which lenders would suit your individual loan requirements.