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Secured Business Loans

Secured Loans for Business

Secured business loans are a form of finance that allows businesses to use assets like property or equipment as collateral. See how they work and whether they’re right for your business.

What is a secured business loan?

A secured business loan lets your business borrow money using an asset, such as business property, equipment, or vehicles, as collateral for the loan. They can often come with lower interest rates, higher borrowing limits and longer repayment terms compared to unsecured loans, which are not tied to any collateral.

However, this does involve putting something valuable on the line, and if you miss too many repayments it’s possible the lender will seize your assets.

» COMPARE: Best business loans

How do secured business loans work?

Generally a secured business loan work in a similar way to other types of business loans:

Apply for the loan.
Have your asset assessed. The main difference compared to unsecured loans is that the lender may want to assess any valuables you put up as collateral.
Borrow a set amount.
Repay the amount and interest over an agreed term in regular instalments.
If you default on your payments, the lender can claim your asset as security.

Bear in mind that these loans can take longer to finalise as the supporting documentation is a little more complex.

What is the difference between a secured and unsecured business loan?

While secured business loans use assets as security, an unsecured loan requires no such collateral, so they’re usually easier and quicker to arrange. However, secured loans typically offer:

Lower interest rates: The overall cost of the loan will often be lower as you provide collateral.
Higher borrowing limits: You’ll usually be able to borrow more when putting an asset on the line.
Longer repayment terms: You can repay the money back over a longer period, meaning it’s easier to manage your budget.

» COMPARE: Unsecured business loans

Is it easier to get a secured or unsecured business loan?

Secured business loans can be easier to get if you have a weaker credit history, as you’re offering an asset as collateral for the lender. But unsecured loans are often quicker and easier to apply for, as there is no asset to value and these often require less paperwork.

What kind of assets can I use for a secured business loan?

It is likely to vary between lenders, but secured business loans commonly use assets such as:

Business property.
Equipment or machinery.
Business vehicles.

What assets can I use as a sole trader?

If you’re a sole trader then the business vs personal line is a little blurrier. In this case, some lenders may accept using your home or another personal asset as security for the business loan. But it’s important to be aware that this means your personal assets are at risk if you are unable to repay the loan.

What are the pros and cons of taking out a secured business loan?

Here’s a quick run down of the positives and negatives of taking out a secured loan for your business:

Pros

Secured business loans tend to offer more favourable terms, including lower interest rates, higher borrowing limits and longer repayment terms.
They also don’t require as good a credit history as secured loans, because the lender can seize assets if you default on repayments.
These loans are a good option for businesses with a short trading history, as the assets you put down as security give lenders more confidence in your ability to repay.

Cons

The main thing to consider with a secured loan is that your asset will be at risk and could be seized if you don’t repay your loan.
The application process can take longer, as lenders often want to carry out extra checks on your assets.
You may also need to pay extra fees for a secured business loan, including valuation and legal costs.

What can I use a secured business loan for?

You’ll be able to use your business loan for any practical business needs. This could include:

Covering gaps in cash flow.
Buying equipment, vehicles, or even stock.
Moving premises.
Paying bills.
Hiring and recruitment.
Marketing.

Generally speaking, secured loans often make sense when the spend is bigger, with long-term thinking, and tied to growth. This can also help you feel more confident about putting up an asset as security.

How much can my business borrow with a secured business loan?

You could get a secured business loan of anywhere from £1,000 to £1 million and even more. The amount your business will be able to borrow will depend on a number of different factors, including your trading and credit history, revenue, and the value of the asset you offer as collateral.

» MORE: Business loan calculator

What is loan-to-value?

Loan to value, or LTV, is the percentage of the value of your asset that you are able to borrow. This is an important aspect of the secured loans application process, and is calculated by dividing the loan amount by the value of your property, then multiplying it by 100 to get a percentage. A lower LTV, typically of 80% or less, means there’s less risk for lenders, increasing your chances of approval and securing better rates.

Will my business qualify for a secured business loan?

Whether or not your business is eligible for a secured loan will depend on the lender, your business, and the security you offer, as well as the specifics of the loan you want to take out. You will need to meet basic eligibility requirements, which usually means you will need to be at least 18 years old, a UK resident and be a sole trader, partner or director of a UK-based business.

In addition, lenders will consider the following:

The amount you want to borrow.
How long you want to borrow for.
How long you’ve been trading.
Your business credit history.
Your revenue and income.
Your business plan and forecasts.
How you plan to use the loan.
The value of the asset you plan to use as collateral.

» MORE: How to get a business loan

How to get a secured business loan through NerdWallet UK

In three short steps, we can help you find the best secured business loans – without affecting your credit score.

Tell us about your business: share a few details so we understand your needs.
See your matched lenders: view secured business loans from our panel of lenders that your company is most likely to qualify for.
Compare and apply: choose a loan and apply directly with pre-filled details.

» COMPARE: Secured business loans

What are the alternatives to a secured business loan?

Secured loans are not the only option for businesses that need finance. You may also want to consider the following:

Unsecured business loans

Unsecured business loans let you borrow without putting forward an asset as security. While often faster to arrange, they often come with higher interest rates, lower borrowing limits and sometimes the requirement of a personal guarantee.

Best for: Established businesses that need a straightforward lump sum.

» COMPARE: Unsecured business loans

Invoice financing

Invoice financing lets you borrow against the value of unpaid invoices you’re due to receive. You can often borrow up to around 90% of an invoice’s value, depending on the lender.

Best for: B2B businesses with unpaid invoices that need to unlock funds fast.

» COMPARE: Invoice finance

Asset financing

Asset finance is a type of secured borrowing, allowing you to buy equipment without paying the full cost up front – for example, when you lease or hire equipment or machinery, or spread the cost over time.

Best for: Businesses that want to spread the cost of expensive equipment.

Business credit cards

Business credit cards can be useful for everyday spending and as help managing short-term cash flow. Some business credit cards offer low or even zero-interest periods, and you can avoid paying interest at all if you clear the balance in full.

Best for: Best for every day business spending and short-term cash flow

» COMPARE: Business credit cards

You don’t always need good credit for a secured business loan as lenders are more likely to approve secured loans as they have an asset to fall back on.

These loans can be a good way for businesses with poorer credit or a shorter trading history to access finance at lower rates than might be available with unsecured finance.

You may be required to show your lender a business plan, as they may want to see forecasts and justification for the loan. Forecasts and business plans can also affect the rate you get on your loan.

The total cost of your loan is given as the APR, which includes the cost of any interest you pay as well as any fees and charges involved in the loan.

While it’s impossible to say what specific interest rate you’ll get until you’re approved, it’s likely you’ll get a lower rate compared to an unsecured loan. The actual rate will depend on your trading and credit history, revenue and forecasts, the type of loan and the terms you’re looking for.

You might need a personal guarantee, but these are more common on unsecured business loans. It will usually depend on your business’s trading and credit history as well as possibly your own personal credit history.

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