Secured Business Line of Credit: Best Options for 2023

What is a secured business line of credit?

Secured business lines of credit are backed by some type of collateral, typically tangible business assets like property or equipment. The collateral you provide serves as a form of security for your lender — if you fail to repay, the lender can claim and sell your pledged assets to cover its losses.

Some lenders may also require a personal guarantee and/or a Uniform Commercial Code (UCC) filing — in addition to specific collateral.

A personal guarantee holds you personally responsible for the debt if your business can’t pay, and a UCC filing allows your lender to seize your business assets if you default. These documents provide further protection for your lender to ensure that your credit line is repaid.

How does a secured business line of credit work?

Like any other business line of credit, a secured credit line allows you to borrow from a set limit of funds and only pay interest on the money you borrow.

Then, you repay what you’ve borrowed over time — usually on a weekly or monthly schedule. You can continue to draw on your credit line, as needed, provided that you make timely payments and don’t exceed your credit limit.

Unsecured vs. secured business line of credit

Unlike secured lines of credit, unsecured business lines of credit are not backed by physical collateral. These credit lines may, however, require a personal guarantee and/or UCC lien. Despite the terminology, it’s unlikely that you’ll find an unsecured line of credit that doesn’t include any protection for the lender.

When you don’t provide collateral, lenders may see your business as more of a risk. As a result, unsecured lines of credit tend to have lower funding amounts, shorter repayment terms and higher interest rates compared with secured credit lines.

» MORE: Is a small-business loan secured or unsecured?

Pros and cons of a secured business line of credit

Pros

• Better rates and terms. When you provide collateral, you offset some of the risk a lender takes when issuing financing to your business. You should be able to qualify for competitive interest rates and repayment terms on a secured credit line — especially if you have a good credit history and strong finances.

• Increased chances of approval. Securing your line of credit with collateral can help strengthen your loan application, especially if you’re a newer business or you have a rocky credit history.

Cons

• Slower to fund. Secured business lines of credit can take longer to fund as your lender may require an appraisal of the assets you’re putting up as collateral. Compared with unsecured lines of credit, you’ll also have to provide more documentation describing your collateral and its value.

• Assets at risk. If you can’t repay your line of credit, your lender can seize the assets you used as collateral to recover their losses.

Where to get a secured business line of credit

Secured business lines of credit are available from traditional and online lenders. The right option for you will depend on factors such as funding needs, speed, interest rates and qualifications, among others.

Banks and credit unions

Banks and credit unions will typically provide credit lines with the most competitive interest rates and terms. These lenders may offer different ways to secure your line of credit — like a certificate of deposit or non-real estate business assets.

To qualify, however, you’ll generally need multiple years in business, good credit and strong finances. Business bank loans are also slow to fund. Wells Fargo’s secured credit line, for example, takes up to two weeks just for processing after you’ve submitted your documentation.

SBA lenders

SBA lenders offer secured lines of credit through the 7(a) loan program. Some SBA lenders, usually banks and credit unions, provide credit lines through the CAPLines program, which falls under the larger 7(a) umbrella.

There are four types of these SBA lines of credit, designed for specific use cases, such as working capital, seasonal slows and contract orders. To qualify, you’ll need to meet standard requirements for the SBA 7(a) loan program as well as criteria for the individual credit line you need. Collateral requirements also vary based on the specific credit line.

If you don’t qualify for one of these credit lines, you may be able to get financing through the Community Advantage (CA) program. This program is designed to help borrowers in traditionally underserved markets, such as startups and those in low-income communities.

These credit lines are issued by participating lenders, like SBA microloan intermediaries and certified development financial institutions. It’s important to note, however, that not all CA lenders are authorized to issue lines of credit, so you’ll want to check with any potential lender before moving forward.

Compared with other SBA loans, these credit lines have flexible qualification requirements and are often faster to fund. Lenders are not required to take collateral for credit lines of $50,000 or less, but they must follow their standard underwriting policies funding amounts greater than $50,000.

» MORE: How to qualify for an SBA loan

Online lenders

Online lenders tend to provide fast, flexible funding. Compared with bank and SBA lenders, these companies typically have more lenient qualification requirements but higher interest rates.

Although some online lenders may issue secured credit lines, many offer unsecured lines of credit instead. If you need faster access to working capital but don’t want to pay a premium on speed and flexibility, you might try talking to an online lender about its collateral policies.

Though the lender may not require collateral, it may allow you to secure your line of credit to access more competitive terms.