Secured Business Loans

If you're a UK business with valuable assets and looking to raise capital for growth, a secured business loan might be an ideal option. By offering assets as security, lenders face less risk, which increases your chances of approval. This also means you can access lower interest rates, longer repayment terms, and larger loan amounts. From banks to alternative finance providers, the UK offers a variety of lenders, each with different loan products tailored to businesses.

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What Is a Secured Business Loan?

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A secured business loan allows you to borrow against one or more of your business assets. These assets act as a guarantee for the lender, which can result in better repayment terms compared to unsecured loans.

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Common assets used for securing loans include property, machinery, equipment, or land, although high-value items you or your business own could also be used. Some types of secured lending, such as invoice finance, allow you to use unpaid invoices or accounts receivable as collateral.

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The main advantage of secured loans is that, due to the reduced risk for lenders, you can typically borrow more, repay over a longer period, and enjoy lower interest rates compared to unsecured loans.

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How Secured Business Loans Work

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A secured loan works similarly to other business loans, with the primary difference being that assets are used as collateral. The amount you can borrow is based on the value of the assets you offer as security. This differs from unsecured loans, where approval is more likely to be based on your annual turnover or business performance.

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The process involves a valuation of your assets, which can take time, especially if property is involved, as the lender may need to place a legal charge on it. Once approved, you’ll receive the funds and repay them in monthly instalments over the agreed term. If you fail to make repayments, the lender can seize the assets used as collateral to recover their funds.

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Example of a Secured Loan

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For instance, say you borrow £500,000, using your commercial property as collateral. The lender assesses the application, values your property, and offers you a loan with a fixed interest rate of 8%, to be repaid in monthly instalments over 20 years.

 

Pros and Cons of Secured Business Loans

 

Pros:

• Lower interest rates: Since the loan is secured by valuable assets, the lender’s risk is reduced, leading to cheaper borrowing compared to unsecured options.

• Larger loan amounts: You can often borrow up to the full value of the assets you pledge.

• Longer repayment terms: Loans secured against assets often come with extended repayment periods, which can ease cash flow pressures.

• Flexible criteria: If you have limited trading history or a poor credit score, secured loans are more accessible, as the lender focuses more on the value of your assets than your credit history.

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Cons:

• Asset ownership: Not all businesses may have suitable assets to offer as collateral.

• Risk of asset loss: If you default on your loan, the lender may sell your assets to recoup the loan amount.

• Upfront costs: Secured loans typically involve valuation and legal fees, which you may need to pay upfront.

• Time-consuming: The process of valuing assets and securing a loan can take longer compared to unsecured loans.

 

What Are the Criteria for a Secured Loan?

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Eligibility for a secured business loan generally depends on whether you or your business own valuable assets to offer as security. Lenders will assess the value of these assets and your business’s trading history. However, even businesses with poor credit or minimal trading history may qualify if they have valuable assets to secure the loan.

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How Much Can I Borrow?

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In theory, you can borrow up to 100% of the asset value, but in practice, most lenders will offer 50-70% of the asset’s worth. Depending on the assets you provide, you can secure loans ranging from £5,000 to £5 million.

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Secured vs. Unsecured Loans

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A secured loan uses business assets like property, machinery, or vehicles as collateral, which allows lenders to offer larger amounts and lower interest rates. Unsecured loans, on the other hand, don’t require assets but often come with higher interest rates and are quicker to arrange. They may require a good credit score and trading history.

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Easier to Get Than Unsecured Loans?

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Yes, secured loans are often more accessible for businesses that have assets to pledge, even if they lack strong trading history or credit. However, secured loans may take longer to arrange due to the asset valuation process.

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What Assets Can Be Used as Security?

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Lenders prefer easily resellable assets like commercial property, vehicles, or heavy machinery. Some lenders also accept personal assets, like residential property, or even soft assets like unsold stock. You may also need to provide a personal guarantee in addition to business assets.

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Can I Secure a Loan With Property?

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Yes, commercial property is a common asset used to secure business loans. Lenders will assess how much equity you have in the property and may register a legal or equitable charge over it.

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Cash-Secured Business Loans

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Some businesses use cash as collateral for a secured loan. These loans often come with different terms compared to loans secured with property or other assets.

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What if I Have Bad Credit?

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If your business has a poor credit history, secured loans may still be an option, as lenders focus more on the value of your assets than your credit score. However, missed payments or defaults can still harm your business credit score and affect your future financing options.

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Personal Guarantees

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While offering high-value assets reduces the risk for lenders, they may also ask for a personal guarantee, especially if your credit history is not perfect. This means you’ll be personally liable for the debt if the business defaults.

 

Alternatives to Secured Loans

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If a secured loan isn’t suitable, you may consider unsecured loans, revolving credit, business credit cards, or invoice finance. These options may offer faster access to funds, but often at a higher cost.

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Getting a Secured Business Loan With Monetae

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If you're considering a secured business loan, Monetae can guide you through the options and help you find the best loan for your business. Get in touch with our loan experts for a free consultation today.