What Is a Secured Business Loan? Pros & Cons and How to Get One
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How much do you need?
What is a secured business loan?
How to secure a business loan
- 🏠 Property. This can include business and personal assets, such as real estate, office equipment, manufacturing equipment, vehicles or your home.
- 🚜 Equipment. Equipment you already own can be used as collateral. However, you can also get self-securing financing, in which the equipment you’re looking to buy serves as collateral. This is known as equipment financing.
- 🛍️ Inventory. Similar to equipment, inventory can be used to secure a loan in two ways. You can use existing inventory as collateral, or you can get inventory financing, in which you use a loan to buy new inventory and that inventory then serves as collateral on the loan.
- 🧾 Invoices. You can use your outstanding customer invoices as collateral to get a cash advance from a lender. Also known as invoice factoring, lenders advance you a percentage of your unpaid invoice, and when your customer pays the invoice, you receive the remaining percentage minus the lender’s fees.
- 💵 Savings. You can use the cash in your bank account to secure a business loan. Some lenders may prefer cash because it’s the most liquid type of collateral.
- 🤝 Personal guarantee. A personal guarantee is a legal agreement that holds you personally responsible for your business’s debt and allows the lender to claim your personal assets to cover the debt if your business can’t pay. Sometimes, adding a second person to guarantee the loan, or a business cosigner, can also serve as a way to secure a business loan.
- 🏛️ Uniform Commercial Code lien. A UCC lien gives a lender the right to seize your business’s assets if you can’t repay your loan. A UCC lien is an official document, typically filed with the applicable secretary of state’s office after you’ve signed your loan agreement. Lenders may file a UCC lien on specific business assets such as equipment, or they’ll file a blanket lien, which covers all assets.
Types of secured business loans
SBA loans
Business term loans
Business line of credit
Equipment financing
Commercial real estate loans
Best secured business loan options
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Secured vs. unsecured business loans
Secured business loans | Unsecured business loans | |
---|---|---|
Collateral requirements | Typically require physical or financial collateral and may also require a UCC lien or personal guarantee. | Typically require a UCC lien or personal guarantee. |
Loan terms | Tend to be longer because your collateral reduces the lender’s risk. | Tend to be shorter so the lender can be repaid quickly. |
Interest rates | May be lower than unsecured business loans, depending on the lender and your overall qualifications. | May be higher than secured business loans, depending on the lender and your overall qualifications. |
Pros and cons of secured business loans
Pros
Using collateral to reduce risk for the lender may help you access larger loan amounts, lower interest rates and longer repayment terms.
Collateral may increase chances of approval and can help newer businesses or borrowers with bad credit qualify.
Cons
Assets you use as collateral are at risk if you can’t repay your financing.
Can be slower to fund than unsecured loans, especially if the lender requires an appraisal of your collateral.
How to get a secured business loan
1. Determine your funding needs
2. Evaluate your qualifications
3. Identify and assess the value of your collateral
4. Compare secured business lenders
Banks and credit unions
SBA lenders
Online lenders
5. Gather your documentation and apply
- Basic information about you and your business.
- Business and personal tax returns.
- Business and personal bank statements.
- Business financial statements.
- Detailed information about your collateral.
- Lease agreements.
- Existing business debt schedule, if applicable.
6. Review your loan agreement
Concerned about tariffs?
- Need emergency funding? Consider a business line of credit.
- Looking for fast access to working capital? Discover the best working capital loans.
- Want tips on how to mitigate the impact of tariffs? Read our guide.
Alternatives to secured business loans
- Unsecured business loans. If you lack existing collateral, unsecured business loans may be a worthwhile option. These loans aren’t secured with physical assets, but they will typically require a personal guarantee and/or UCC lien. Remember that some funding — like equipment loans or commercial real estate loans — can be secured with the property you’re financing. You don’t necessarily need collateral before you apply for these kinds of secured loans.
- Accounts receivable factoring. Accounts receivable factoring is a type of funding in which you sell your company’s unpaid invoices to a factoring company. This type of financing can be a good option for borrowers with bad or limited credit histories. Because you’re selling your unpaid invoices, factoring companies tend to rely more heavily on your customers’ credit and payment histories when evaluating your application.
- Business credit cards. Business credit cards offer flexible financing to businesses of all ages. In particular, startups can use business credit cards to pay for everyday purchases, as approval is based on your personal credit history. To avoid accruing expensive interest, however, you’ll want to make sure you can pay off your balance every month. Like online business loans, business credit cards usually require you to sign a personal guarantee.
- Small-business grants. If you want to avoid debt altogether, you might consider applying for small-business grants. Grants offer free access to funds that don’t need to be repaid. Although grant applications can be time-consuming and competitive, the process will be worth it if you can get funding. Business grants can be a particularly good option for companies involved in research and technology — as they may be able to qualify for federal grant programs.
Frequently asked questions
Can a business get a secured loan?
What is needed for a secured business loan?
Which banks offer secured business loans?
What is the best collateral for a business loan?
Article sources
- 1. U.S. Small Business Administration. Types of 7(a) loans. Accessed Aug 12, 2025.
Methodology
NerdWallet’s review process evaluates and rates small-business loan products from traditional banks and online lenders. We collect over 30 data points on each lender using company websites and public documents. We may also go through a lender’s initial application flow and reach out to company representatives. NerdWallet writers and editors conduct a full fact check and update annually, but also make updates throughout the year as necessary.
To come up with our list of the best secured business loans, we selected financing options that require collateral and have strong NerdWallet star ratings.
Our star ratings award points to lenders that offer small-business friendly features, including:
Transparency of rates and terms.
Flexible payment options.
Fast funding times.
Accessible customer service.
Reporting of payments to business credit bureaus.
Responsible lending practices.
We weigh these factors based on our assessment of which are the most important to small-business owners and how meaningfully they impact borrowers’ experiences.NerdWallet does not receive compensation for our star ratings. Read more about our ratings methodology for small-business loans and our editorial guidelines.
- What is a secured business loan?
- How to secure a business loan
- Types of secured business loans
- Best secured business loan options
- Secured vs. unsecured business loans
- Pros and cons of secured business loans
- How to get a secured business loan
- Alternatives to secured business loans
- Frequently asked questions