Where to get a secured business loan

A secured business loan is a loan that lets you use business assets as collateral for the money you borrow. This could be a piece of property, equipment for your business or any other expensive asset, either personal or commercial.

Providing collateral boosts your chances of getting approved and allows you to access a lower interest rate and a higher loan amount than you’d get with an unsecured loan. If you make on-time payments, you get to keep your assets. If you default on the loan, the lender can repossess the assets to recoup their losses.

What can I use a secured business loan for?

You can use a secured loan for any business purpose. This can include buying commercial property, equipment or vehicles. You can use it to grow or expand your business, hire staff and buy inventory. You could also use the funds to buy another business, refinance debt or accumulate working capital.

What can I use as collateral for a secured business loan?

The assets most commonly used to secure a business loan are commercial and residential property. But realistically, anything of value can be put up as collateral. Depending on the lender and the amount you want to borrow, you may be able to use the following assets as security:

• Business inventory
• Business equipment
• Business equity
• Future invoices
• Personal vehicles
• Commercial vehicles
• Fine art and jewelry
• Personal savings

You don’t necessarily need to own a property outright to offer it as security. You may be able to access equity in your personal or business property to get the funding you need.

Types of secured business loans

There are multiple types of loans available if you have an asset you can provide as collateral. Examples include:

• Business term loans. This type of loan provides a lump sum of money you can use to expand your business or cover expenses. You repay the funds you borrow plus interest in installments. Fixed and variable rate loans are available.
• Business lines of credit. A business line of credit provides access to a revolving line of credit that you can access whenever you need (up to a set limit) to cover ongoing costs and unexpected expenses. You only pay interest on the money you use, and you can usually access the funds again once you have repaid what you borrowed.
• Equipment financing. Equipment finance provides the funds you need to purchase essential equipment for your business, and that equipment is then used as collateral for the loan. You pay back what you borrowed in installments.
• Commercial mortgages. A commercial mortgage provides the money you need to buy real estate for your business, and the property acts as collateral for the loan until it has been repaid.

What are the risks of secured business loans?

The main risk of secured business loans is that if you default, the lender can repossess your asset. This could have serious consequences for the future of your business, especially if you used property as collateral. And if you listed a personal asset as collateral, you’ll lose more than just an important part of your business.

As with any other type of loan, you should always be wary of borrowing more than you can afford to repay. Use a loan calculator to work out how much your regular payments will be and the total cost of repaying a loan before you sign on the dotted line.

Pros and cons of secured business loans

Pros

• Lower interest rates. Securing the loan with collateral reduces the risk for the lender, which means you can get a lower interest rate. Learn more about business loan interest rates.
• Higher borrowing amounts. If you have big plans for your business, you may need a bigger loan. A secured loan lets you access higher borrowing amounts than unsecured loans.
• Long loan terms. Some secured loans offer terms of up to 30 years, allowing you to budget for lower monthly repayments.
• Easier to qualify. Given that the loan is secured, some lenders may be more willing to work with borrowers who have less-than-perfect credit histories.

Cons

• You need to provide collateral. Not all businesses are willing or able to provide assets as security for a loan.
• You could lose your assets. This type of loan comes with a risk of losing your asset if you default.
• Longer processing times. There’s more documentation involved with a secured loan, so your application will take longer to be processed.
• Fees. You can expect to pay legal and valuation fees (to have your assets appraised) for a secured business loan.
• Interest. While a longer loan term means you’ll have a lower monthly payment, it also means you’ll pay more interest over the life of your loan.

Secured business loans vs. unsecured business loans: Which is best for my business?

Is a secured business loan the right choice for you?

First and foremost, you’ll need to have a suitable asset or assets you can provide as collateral for a loan. If you do—and if you’re comfortable with the fact that you’ll be putting those assets at risk if you can’t keep up with repayments—then a secured business loan could be a good choice, particularly if:

• You have a startup with limited credit history and a short period of time in business
• You’ve got bad credit
• You want a competitive interest rate

But if you don’t have any collateral to offer, you have good to excellent credit and you want fast access to funds, an unsecured business loan may be a better option. Learn more in our guide to unsecured business loans.

How to compare secured business loans

Keep the following factors in mind when you’re comparing business loans:

• Interest rate and fees. The rate you’ll get depends on your business’ financial situation and history. Remember to check the loan’s APR, which incorporates the interest rate and loan fees to give you a more accurate idea of the cost of borrowing. But take note that not all fees are included in the APR, so check the fine print closely for any additional charges that may apply.
• Loan term. With a short loan term, you can expect higher monthly repayments. But while longer terms might make it easier to manage cash flow with smaller monthly repayments, you pay more in interest over the life of the loan. Use a business loan calculator to get an idea of what your repayments will be with different loan terms.
• Asset type. Look into what type of asset the lender accepts as collateral to make sure you’re eligible for funding.
• Loan amount. Minimum and maximum loan amounts vary depending on the lender. How much you can borrow depends on your financial situation and the collateral you provide.
• Repayment flexibility. Look into whether the repayment schedule can be tailored to suit your business cash flow. If you want to repay the loan early, can you do so without being charged a fee?

Am I eligible for a secured business loan?

Loan eligibility requirements vary between lenders, but as a general rule you will need to meet the following criteria:

• Time in business. Most lenders require that your business be operating for at least six months or up to two years in some cases.
• Financial strength. Lenders assess your business’ profit and loss statements, average monthly turnover and income projections to determine if you can make your repayments.
• Appropriateness of the asset. You’ll need a suitable asset to provide security for the amount you wish to borrow.

How to apply for a secured business loan

It takes longer to get approved and funded for a secured business loan. This is because the underwriting process is more involved, as the lender will need to have your collateral appraised. However, there are a few things you can do to increase your chance of approval.

• Know the value of your asset. Have your asset professionally appraised so you know how much it is worth and how much you can reasonably expect from the lender.
• Put together a business plan. You’ll need to provide a detailed business plan that outlines how you intend to use your loan. It should also include details on what your company does, any industry experience key team members have, a marketing plan and financial statements and projections.
• Check your credit score. Lenders use both your personal and business credit scores to determine your interest rate and how much you can borrow—even with a secured loan.

Some lenders allow you to apply online, but traditional lenders like major banks will typically require that you book an appointment to start the application process.

Bottom line

A secured business loan could be a good choice for an established business looking to expand or a new business wanting to buy property or expensive equipment. Although it comes with a certain amount of risk should your business default, the low rates and high loan amounts make secured business loans a strong option for companies of all sizes. Compare more business loan options to find a lender and loan that suits your business needs.

FAQs about secured business loans

• What if I don't have any assets I can offer as security?

  You may need to consider an unsecured business loan. Unsecured loans don't require collateral but tend to have stricter eligibility criteria. Additionally, you may only be able to qualify for a lower loan amount and a higher interest rate than with a secured loan.

• Where can I find a lender that offers secured business loans?

  Secured business loans are most commonly offered by banks and traditional lenders, but secured loans are also available from online lenders. If you're having a difficult time getting a business loan, you may also want to look at the option of getting a personal loan to use for your business instead.

• What if, during the loan term, I want to sell the asset I used to secure my loan?

  You'll need to get your lender's approval to sell the asset and offer another acceptable form of collateral to take its place.

• Is a small business loan secured or unsecured?

  Small business loans can be either secured or unsecured. Secured loans provide access to larger loan amounts and lower interest rates and can be easier to qualify for than unsecured loans. However, you risk losing the asset you provide as collateral for a secured loan if you can't make your repayments.

• Where can I get a secured loan for a small business?

  You can get a secured business loan from online lenders or traditional lenders like banks or credit unions. Compare a range of providers to find the best rate and terms that suit your business.

• Can I get a secured business loan with bad credit?

  Yes, you can get a secured business loan with bad credit. Because you provide an asset as collateral, the lender knows there is less risk in offering you a loan. If you default, they can sell the asset to get back the money you owe.

• What secured business loan interest rates will I get?

  The interest rate you get on a secured business loan will vary depending on factors like your time in business, your business' financial situation and history, whether you opt for a fixed or variable rate and the lender you choose. However, you'll generally get a lower interest rate on an unsecured business loan than on a secured loan.

To make sure you get accurate and helpful information, this guide has been edited by Leanne Escobal as part of our fact-checking process.

Written by

Tim Falk

Writer

Tim Falk is a freelance writer for Finder. Over the course of his 15-year writing career, he has reported on a wide range of personal finance topics. Whether you're investing in stocks and ETFs, comparing savings accounts or choosing a credit card, Tim wants to make it easier for you to understand. When he’s not staring at his computer, you can usually find him exploring the great outdoors. See full bio