A secured business loan enables you to access finance by offering a company asset such as property, machinery or equipment as security against the amount you need.
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If you are a UK business owner looking for capital to grow, securing an asset against a business loan could be a great way to raise the funding you need. Find out everything you need to know about a secured business loan in our SME guide below.
A secured business loan allows businesses to access funds by providing an asset as security for the loan. This form of lending is also known as asset-backed lending.
Using a commercial asset, such as property, equipment or land, as security against your loan, you could access a high value secured business loan from £5,000 to £2 million+.
This security is essentially used to lower the risk for lenders; therefore, interest rates and repayment terms tend to be very competitive. But in the event your business is unable to repay the loan, the asset could be used to recover the funds.
It is often cheaper to repay a secured business loan than an unsecured business loan as the repayments and interest rates are generally lower. Lenders offer greater flexibility with their funding arrangements and can offer generous repayment terms of up to 10 years.
Our funding providers could approve your application for a secured business loan within 48 hours! Apply online now via our short application form and receive a fast, free, no-obligation quotation.
A secured business loan is generally secured against a high-value asset such as a commercial property or home. Other forms of personal or business collateral such as equipment, machinery, vehicles and other inventory can be used. The process is similar to applying for a mortgage and can involve a valuation process.
As the majority of secured business loans are fixed rates, repayments are made monthly over the long term until the loan is paid in full. If you default and fail to repay the loan, your asset is potentially at risk of being repossessed by the lender.
Example
1) You decide to use your commercial property as security
2) You choose to borrow £150,000 over a 5-year term
3) The loan has a fixed annual interest rate of 10%
4) You will repay 60 monthly instalments of £3187.06
5) The cost of the loan will be £191,223.60
The amount you can borrow will be based on the value of the asset you pledge. It will need to cover the loan amount that you are going to drawdown. Most lenders will lend up to 100% of the asset value. For example, if you are looking to borrow £100,000, the asset will need to be of that value or greater.
Most lenders will generally consider a wide variety of tangible and intangible business assets to secure the loan against. Some of the most common assets include the following:
Some lenders accept a net worth of multiple assets. In certain circumstances, you can offer personal assets, such as a car, residential property and shares as security against your secured business loan. A debenture or a personal guarantee may also be required as another form of security.
Tangible means they are physical (you can touch them) and intangible simply mean they are non-physical (you can’t touch them). Specialist lenders will consider intangible assets as security. However, it can be more difficult to value than traditional ‘bricks and mortar’ properties or other physical assets. Below are just some examples of tangible and intangible assets:
| Tangible Assets | Intangible Assets |
|---|---|
| Property | Trademarks |
| Stock | Patents |
| Land | Copyrights |
| Cash | Intellectual property (IP) |
| Equipment | Licences |
| Machinery | |
| Vehicles | |
| Accounts receivable |
There are many advantages to using a secured business loan over unsecured lending such as better rates. However, as with all financial products, it does come with its own risks.
Larger loan amounts - When compared with other types of business loans, lenders of secured business loans typically offer larger loan amounts. The amount available to borrow is usually determined by the value of the collateral used as security against your loan. In some cases, it is possible to borrow up to 100% of the value of the asset.
Longer repayment terms - Managing the loan is made easier, as repayment terms tend to be lengthy. Business owners are therefore able to concentrate on growing their businesses whilst budgeting effectively over a long period of time.
Lower interest rates - Secured business loans often have a significantly lower APR (annual percentage rate) than unsecured business loans, as offering a business or personal asset security minimises the risk for the lender.
Bad credit ratings accepted - Although credit history and credit ratings still matter, businesses with poor credit history can still qualify for this type of finance as the asset will be used as security against the loan.
For a Startup with no trading history - It can be great for start up businesses, yet to submit annual accounts or businesses with no credit history. You can then use your company assets to lend against.
Yes. Whatever asset you choose to secure against will be at risk and you may lose it if you fail to meet the repayment agreement set out by the lender. The lender will gain possession of the asset to cover the cost of the outstanding debt.
If you are a small business or sole trader and you are struggling with debt, you can get free business debt advice and support through charities like the Business Debtline.
To qualify, you must operate a UK registered business that has been trading for at least 3 months. Should you have a poor credit history, you may also be required to demonstrate a sustained period of growth.
Unlike many high street banks, our alternative finance providers will not require comprehensive business plans to process your application for a secured business loan.
If you operate a limited company or a limited liability partnership, you may be required to provide a personal guarantee alongside a company asset as security for your secured business loan. Even if your business does not own any assets, you could still obtain funding with just a personal guarantee as security.
If the directors or shareholders hold a certain shareholding per cent, they may also be required to provide a personal guarantee. Residential property or high-value personal possessions are considered to be suitable personal assets.
Yes, you can. It is worth noting that if you are offering commercial property or land as an asset, which has an existing mortgage, the lender may register a legal or equitable charge. Here are the breakdown and the differences between the two.
A legal charge gives the lender the power of sale if repayments are not maintained. However, if consent is required from an existing lender, such as a mortgage provider, registering a legal charge can take time and the funds may not be made available for some weeks.
Many lenders offering secured business loans choose to register an equitable charge over a property, meaning a fast process and not requiring the consent of the mortgage provider.
The lender will not gain the power of sale over the property but it does provide enough security for them to approve your loan. With an equitable charge, funds are made available within hours of approval.
Should you lack the assets to qualify for a secured business loan or you do not wish to use your property as security against a loan, an unsecured business loan could offer a better solution for your needs. Alternatively, our wide range of other business finance options could provide the right funding solution for your business.
Use our online calculator as a quick guidance tool to help estimate the cost of interest and monthly repayments of a secured business loan. Simply input a loan amount, APR and term length to get an idea on how much you can afford to borrow and the total cost of finance.
Monthly Payments
Total Interest
Avg. Monthly Interest
Total Cost of Finance
This calculator is intended for illustration purposes only and exact payment terms should be agreed with a lender before taking out a loan.
THINK CAREFULLY BEFORE SECURING DEBTS AGAINST YOUR COMMERCIAL PROPERTY OR HOME. YOUR COMMERCIAL PROPERTY OR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
"Secured business loans are a great way to raise funding to help grow your company. With generally lower interest rates and charges than other forms of finance, it is only suited for businesses that have high-value assets to utilise."
Chloe Mckenna - Finance Specialist
