If you’re a UK business owner who needs to secure some additional capital, arranging a business loan against one or more of your business assets can be a useful, more accessible way of raising the required funds while retaining low levels of interest.
This is because, with business assets attached to the loan, the lender is less likely to suffer loss should the borrowing party fall into arrears. Hence, they are more likely to agree to a loan and, indeed, to lend larger sums of money, over longer repayment terms, with a lower interest rate.
What Is a Secured Business Loan?
A secured business loan is one that enables a businessperson to secure a loan against one or more assets.
In this context, such assets are offered as security for the lender, against the money that they are lending. As such, the lender is guaranteed not to lose money should the lender fall into arrears.
As we mentioned briefly above, due to the added security provided by SBLs, the lender may be more open to providing larger sums of money, longer-term repayment plans and, indeed lower rates of interest.
Hence, they can be an attractive means of securing capital.
Types of Secured Business Loans
Typically, there are four different types of cash secured business loans.
Traditional Term Loan
Traditional term loans, or ‘middle-term loans’, are perhaps the most common and accessible form of secured business loan. Therein, a businessperson borrows a specific sum of money, against an asset, that is to be repaid over an agreed time period with a fixed interest rate.
Business Lines of Credit
Also known as ‘revolving credit’, this type of SBL gives the borrower access to a pool of funding from which they may withdraw at will. When the borrowed sum is repaid, the pool is, essentially, replenished and available for future use – hence ‘revolving’ Credit.
Self-Securing Business Loans
These are SBLs that don’t require an asset to be presented up front as collateral. This is because the asset purchased with the loan becomes the collateral. For example, when taking out a mortgage, the property purchased with the loan becomes the collateral guarantee.
How Does a Secured Business Loan Work?
SBLs work in the same way that the vast majority of business loans and lending does. That is to say, you and your lender will agree to a loan sum that is relative to both the value of the collateral asset you can put up against it and, indeed, your needs.
As a result, for those who have a sufficient asset to utilise as a guarantee, SBLs provide an accessible means of securing large loan sums.
However, while the process of securing other types of loans may be relatively quick, the process of negotiating and agreeing to an SBL can take several weeks. This is because the lender will need to assess the value of your asset and, indeed discuss the minutiae thereafter.
It’s worth noting that if your asset is personal or commercial property, the lender may insert additional legal fees due to valuation.
Once you have reached a loan agreement, you will receive your loan and repay it over the agreed, fixed period. Fall consistently into arrears and the lender may enact their right to seize ownership of your asset(s) in order to compensate the missing repayments.
How Can I Get a Secured Business Loan?
You can get an SBL by contacting a bank or lender directly or, preferably, by discussing it with a Business Financing expert first. You can use the form at the top of this page to get in touch with one of our partners.
What Can You Use a Secured Business Loan for?
SBLs can be used for a multitude of things, including funding the expansion of a business or purchasing much-needed machinery. However, the most common use for an SBL is to purchase property via means of a mortgage.
The Pros and Cons of Secured Business Loans
Lower Fixed Interest Rates: due to the extra security that an SBL provides for the lender, they tend to be a much cheaper loan option for the borrower; in particular, interest rates tend to be much lower than those of alternative loans types.
Borrow Larger Sums: again, due to the security that a collateral asset provides to the lender, larger loan amounts may be agreed upon depending on the value of said asset.
Longer Repayment Terms: additional; lender security usually allows the borrower to negotiate a longer repayment term also. Therein, monthly repayments will be lower, thus reducing the financial impact on a business. However, a longer repayment period means greater interest paid overall.
Credit/Trading History Is Less Important: as the asset placed against the loan represents sufficient security for the lender, the credit history of the borrowing party is much less important. As such, SBLs can provide a valuable lifeline for new start-ups or businesses with a poor credit rating.
Dispensable Assets Required: essentially, borrowers must have assets of significant value that they are willing to place as collateral against the loan sum. For some businesses, such as new start-ups whose success isn’t guaranteed, this can be a stumbling block.
Access To Funds May Take Time: unlike other forms of loan, SBL funding can take several weeks to come through to the borrower as the lender conducts independent valuation and other processes surrounding your asset.
You May Lose Your Asset: if you fail to meet the agreed repayment schedule, then the lender can claim ownership of your asset and sell it.
Property Valuation Fees: if you are using personal or commercial property as an asset, the lender may charge you for legal and valuation fees accrued therein. This can be problematic if the resulting valuation doesn’t meet the necessary guarantee summation and thus the loan is unsuccessful.
Does My Business Qualify for a Secured Business Loan?
Due to the additional security that an SBL provides to the lender, the criteria for qualification is more relaxed than the vast majority of other loan arrangements.
As such, if you and/or your business own assets of value, it is likely that your loan will be approved. This is particularly true of borrowers who are willing to utilise property as their asset. Moreover, as stated above, a good credit rating isn’t a requirement as long as the asset is deemed sufficient.
Finally, in the UK, a business needs to have been registered for 3+ months in order to qualify for an SBL.
What Assets Can Be Used As Security for a Secured Business Loan?
Broadly, you can utilise any material goods you own as security as long as the lender deems that its value is reflective of the loan you hope to receive.
That being said, in the UK, property, vehicles and plant & machinery are the most commonly used assets for SBLs.
What’s the Difference Between a Secured and Unsecured Business Loan?
While an SBL utilises an asset as security, an unsecured business loan does not. As such, the success of a loan application is much more dependent on a borrowers financial and credit history, and other aspects of their business profile such as turnover and trading history.
Additionally, due to the lack of security provided to the lender, when approved, unsecured business loans are both quicker to establish and more costly. That is to say, interest rates and monthly payments may be higher with the lender keen to ensure repayment.
What Are the Interest Rates and Fees for Secured Business Loans?
The interest rates and fees for SBLs vary depending on the amount borrowed, the repayment term and the valuation of the asset. If you’d like to receive a quote or to compare secured business loans, pleased don’t hesitate to get in touch with our experts using the form at the top of this page.
What Are the Repayment Terms for Secured Business Loans?
The repayment terms for SBLs vary depending on the sum loaned and asset valuation.
Generally speaking it can be anything from a few months up to 10 years. For property backed loans you can opt for a commercial mortgage which may have terms of up to 25 years.
Can I Get a Secured Business Loan If I Have Bad Credit?
Yes. As a secured business loan requires an asset to be put up as collateral, credit history becomes less influential.
This is because, should the borrower fail to meet their repayments, the lender can simply claim ownership of the asset to recoup their losses.
That said you may still have a more limited pool of lenders to choose from.
How to Choose the Right Secured Business Loan
Choosing the right SBL for you and your business is a crucial process.
After all, while an asset may be put up against a loan as security, you, the borrower, doesn’t want to lose it. With that in mind, our team is here to guide you through the process of establishing the correct Secured Business Loan for you.
Who Offers Secured Business Loans?
While all UK banks offer secured loan terms, many specialist lenders, including our partners above also provide attractive Secured Loan terms. So, if you’re looking to secure a loan to take your business to the next level, they’re ready to help you on your way.
To conclude, SBLs can provide a fantastic, accessible route to securing funding to help develop business or invest in property.
In particular, those with poor credit scores or trading histories may be able to use the money generated via an SBL to help transform their business. However, as with all financial investments and money lending, an SBL requires careful financial planning and, crucially, one or more valuable assets to place against the loan for security.
With that in mind, if you think you could benefit from the financial dexterity a loan can provide but have been unable to secure one due to poor trading history or poor credit history.
Is a personal guarantee required?
Due to the fact that an asset is being put up as security against the loan, when securing an SBL, a personal guarantee is most likely not to be required.
The big exception is if your secured loan is secured against your house or other property. In that case you are effectively offering a personal guarantee.
Will a secured business loan have a negative impact on my business credit score?
For both secured loans and unsecured loans, missing one or multiple loan repayments can inevitably have a negative impact on your financial history and credit score.
With that in mind, it’s important that you establish the right secured loan for your circumstances, while also ensuring you understand the terms and conditions regarding non-payment before committing to a loan.
If, however, you borrow via secured loan and meet all of your repayments, your credit score will not be negatively impacted.
What are alternative financing options to secured business loans?
If you haven’t got the assets to qualify for secured loans, you may still have a multitude of other options available.
As we discussed earlier, an unsecured loan can provide a faster alternative to an SBL and, within that agreement, many variables may be discussed and negotiated in order to make the loan work for you.
However, always remember that an unsecured loan will demand greater interest and higher repayments.
Other alternatives include negotiating:
Is it possible to obtain a secured business loan without any security?
In short, no.
The use of an asset as collateral security is, essentially, what sets a secured business loan apart from alternative money lending schemes.
As a result, those who do not have an asset to put up against a loan will not be able to secure an SBL, but may be able to get an unsecured loan instead.