Secured business loans explained

SMEs use secured business loans to facilitate their growth. Find out how a secured business loan could help you achieve your business goals in this article.

Secured business loans explained | Shire Business Group

Author Name: Shire Business Group

Small businesses and start-ups deserve the opportunity to grow, but often require a cash injection to get started. Secured business loans are an excellent way for start-ups and small businesses to secure the capital they require to grow by using their assets as security. 

Our experts at the Shire Business Group have put together this article to run you through the basics of secured business loans – what are the benefits, and what to consider when applying for a loan. 

“A secured business loan is a type of lending that allows businesses to use assets (both commercial and property) as collateral against the amount they want to borrow.“

What is a secured business loan?

A secured business loan is a type of lending that allows businesses to use assets (both commercial and property) as collateral against the amount they want to borrow. The lender will use the business’ assets as a guarantee, offering better repayment terms and interest rates to compensate.

Benefits of a secured business loan

Because your assets are used as collateral, lenders are taking on less risk. If you’ve been declined an unsecured loan, or need to take out a larger amount than you otherwise could, then this route might be ideal for your business. Secured business loans provide:

  • Lower interest rates – as a result of the reduced risk, lenders will offer reduced interest rates compared to other types of business loans.
  • Borrow more capital – businesses can borrow more depending on the value of the assets put up as security. This means that secured business loans are a good option for businesses who need to generate more capital than they otherwise could without collateral.
  • Longer repayment terms – as monthly payments will be lower, businesses can maintain a healthier cash flow. Generally speaking, secured business loans are taken out in order to facilitate growth, so these longer terms can prove beneficial as time is on your side.
  • A good credit history isn’t mandatory – as the asset covers the risk, lenders will be more lenient if you’ve got a poor credit score. This can be incredibly useful for start-ups who don’t yet have annual accounts or detailed trading history, or for a business who has been struggling for some time. 

Things to consider

Secured business loans aren’t perfect for everyone, there are a few things to consider before committing to a loan of this type:

  • You’ll need valuable assets – this can be a limiting factor, especially for start-ups. If you don’t yet have any particularly valuable assets, or you’ve got nothing that you’re willing to risk, then a secured loan might not be suitable for your business.
  • It’s a risk – collateral is there for a reason. If you struggle to repay your loan, the lender can sell your assets to recoup their funds. Make sure you can meet the loan repayments before taking one out. 
  • It can take a while – as lenders will want to complete their due diligence processes, it can take a few weeks before you gain access to the funds. Make sure you factor this into your timeline.
  • Understand your repayments – when borrowing over a longer term, it’s important to understand exactly how much you’ll be paying, even if the interest is low. 

What assets are usually used for security?

Generally speaking, businesses will use their hard assets as collateral, such as commercial property (offices, shops, warehouses etc.), vehicles (vans, trucks, etc.), or heavy machinery (plant machinery, presses, etc.). It’s also possible to use either the net value of multiple assets combined, or cash, as security, but this depends on the lender and can come with different terms.

Secured vs unsecured business loan 

Every business is different. You should consider every available option in order to establish which style of loan is perfect for you. 

If your business does not have any high-value assets, if you’re worried about offering them as collateral, or if you need a quick-turnaround loan, then it might be worth considering an unsecured business loan. Unsecured loans are a fast, flexible alternative to secured business loans.

However, if you need to loan a higher amount, if you’ve got assets that you don’t mind using as security, or if you’re happy to wait a little longer for your money, then a secured business loan might be best for you. 

Find the ideal secured business loan with Shire Business Group

As lenders are usually more lenient when offering this type of loan, it could be the perfect fit for your business. At the Shire Business Group, we work with tens of thousands of SMEs every year to access the funding they require to help achieve their business goals.

No matter whether you’re a farmer, a dentist, a gym owner, or anything in between, our specialists are on hand to help. We’re here to answer any questions you have; get in touch today for bespoke advice on how we can facilitate finance for your business. 

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