Benefits of secured business loans
Key benefits of secured finance solutions include:
- Typically lower interest rates than unsecured facilities
- Available for new start businesses
- Larger loan amounts
- Longer repayment terms
- Both personal and business assets can be considered
Secured business loans provide a funder with security over assets such as stock, your debtor ledger, or property. Security reduces the risk for a funder if you were to default on your facility so they can put more favourable terms forward to you.
You can typically access larger levels of funding by providing supporting security when compared to equivalent unsecured loan options. This can be necessary when businesses are raising significant amounts of money for large capital expenditure projects.
Some businesses can access considerably higher levels of finance by using personal assets than their business would otherwise be able to access, enabling rapid growth through significant investment.
What is a secured business loan?
A secured business loan is a loan that is secured by collateral, such as property or inventory. Because the lender has collateral to fall back on if the borrower defaults on the loan, they are often willing to offer lower interest rates and larger loan amounts than they would with an unsecured loan.
A lender will evaluate your creditworthiness and other factors to determine whether you’re eligible for the loan, with consideration on both your affordability, and the value of the proposed assets for them to take security over. Often a loss-making or new-start business can access favourable terms by offering assets as security.
The amount you can borrow will depend on the value of the assets you are offering as security up to a maximum LTV, for example, “70% LTV”. This stands for “Loan to Value” and means if your asset was worth £1,000,000 the funder would lend a maximum of £700,000.
Interest rates will vary depending on your unique credit and affordability circumstances. Typically the interest rate on a secured business loan will be lower than an equivalent unsecured business loan as there is less risk to a funder where they have security to protect them.
How does secured business finance work?
A secured business finance lender will typically assess a facility as follows:
- Loan amount: The lender will provide a loan of to a maximum level relative to the value of the assets you are offering as security. Funders may also limit this depending on your business’ turnover and affordability- how much the funder believes you can afford to repay per month.
- Loan term: Secured loan funders tend to be more open to longer term facilities than unsecured loan providers. Property-backed facilities are often between 5 – 15 years, however shorter and longer terms may be available depending on your circumstances and requirements, as well as the type of asset being offered as security.
- Repayment: Typically repayments are made by a fixed monthly direct debit and most facilities have a fixed interest rate. Some funders will permit you to make overpayments and/or settle in full flexibly, often with benefits from settling early.
