Compare Secured Business Loans

What is a secured business loan?

A secured business loan is a type of loan that a company can apply for using its assets as collateral. If the business defaults on its loan repayments, the lender can then claim ownership of, and sell, the assets used as security instead. Because of this effective guarantee, it’s often possible to borrow more or obtain a lower interest rate with business loans secured against property than with an unsecured business loan where security isn’t required.

The way that they work means that secured business loans might also be referred to as asset-backed loans or asset-backed finance. Sometimes they’ll also be called secured small business loans.

Types of secured business loans

There are various types of secured business loans available, including:

• Term loans - secured business term loans can usually be set for the short, medium or long term. Repayments are made each month, so that the loan is gradually paid off over the entire term.
• Interest-only loans - this type of business loan will be fixed for a set amount of years, but in that time your monthly repayments will only ever pay off the interest. This keeps repayments low, but at the end of the term you’ll either need a way to pay off the original loan amount or will need to refinance the capital amount to a new loan.
• Bridging loans - these secured business loans are designed for the short term to ’bridge’ financial gaps. A bridging loan is usually paid off via a single ‘bullet’ payment covering both the capital and interest at the end of the term.

» COMPARE: Business bridging loans

What types of collateral can be used to secure against the loan?

Most lenders will accept tangible or hard assets such as property, land, equipment, or machinery as security against a secured business loan. It may be possible to use cash as collateral, although the conditions of cash secured business loans are often different compared to a business loan secured on property.

Some specialist lenders may also accept intangible or soft assets such as intellectual property, trademarks or patents as collateral, where valuing such assets can prove much harder.

Lenders are also usually willing to accept a combination of different assets as security, which could include assets that you own personally, like your home, car, or shares.

Features of a secured business loan

Most secured business loans in the UK can be tailored to your company’s needs. This means you only need to borrow the amount that you want (subject to any minimum loan amounts a lender might specify). The maximum you can borrow will depend on the value of the assets that you provide as security. You can also choose between a short-term loan or a medium to long-term loan.

» COMPARE: Short-term business loans

If a lender agrees to advance you a loan, there are usually no restrictions on how the funds can be spent. However, you must make the repayments in line with the loan agreement, or else risk losing the assets used as collateral if you fail to repay. Business loans secured against property generally have fixed interest rates, providing certainty over repayment amounts and when they need to be made.

What are the advantages of a secured business loan?

• Will often offer lower interest rates than like-for-like unsecured loans.
• Can allow large loan amounts if sufficient assets are available as collateral.
• Can usually be repaid across a long period of time.
• Could be available even if your business has a bad credit rating or poor trading history.
• May be available to start-up businesses with no trading history.

What are the disadvantages of a secured business loan?

• Your business must have suitable assets.
• These assets are at risk of being lost if repayments aren’t made.
• Can take longer to arrange, due to involvement of assets and the need to make appropriate legal arrangements.

How to get a secured business loan

Different lenders will usually have different requirements, but generally a business will need to have been registered to trade in the UK for a minimum of three months, and have a suitable asset or assets for security.

If your business is set up as a limited company or a limited liability partnership, a lender may also require a ‘personal guarantee’ from yourself as a director of the company. This involves you providing personal assets, such as your home or valuable personal possessions, as additional security that the lender can call on if repayments aren’t made.

How to apply for a secured business loan

The process of applying for a secured business loan will usually involve a consultation with the lender to discuss your borrowing requirements and eligibility. Typically questions will surround your line of business, your business turnover and trading history, and what you intend to do with the funds.

The lender will look at the credit history of your business, but even if this is poor, or you have a low turnover or little in the way of trading history, it doesn’t necessarily mean you can’t get a secured business loan; instead, a greater onus is likely to be placed on the value and merit of your assets as security.

A valuation of your assets will help the lender confirm whether they are prepared to lend to you and on what terms. If they are, and you’re happy with the loan being offered, the legal documents must be signed before the funds are released.

What’s the difference between a secured business loan and an unsecured business loan?

The main difference is that a secured business loan requires assets as security, while an unsecured business loan does not. Therefore the turnover of your company, its trading history and credit rating will be far more important considerations to a lender if you want an unsecured loan, where there is no collateral as a guarantee.

A secured business loan will usually have a lower interest rate than a comparable unsecured loan because having assets as security reduces the risk of a lender not getting its money back. Lenders of asset-backed loans are also often more willing to lend larger amounts and offer longer terms because of the security too; with an unsecured business loan, the maximum that can be borrowed will often depend on the turnover of your business.

With assets part of the equation, the process of applying for a secured business loan is usually lengthier and more complex than applying for an unsecured loan. Secured business loans also often have upfront fees to cover the additional expense of valuing and then making legal arrangements in respect of the assets.

» COMPARE: Unsecured business loans

How to get a secured business loan with bad credit

As a secured business loan provider typically places more importance on the assets that are being used as security than your business’ credit history, an application is unlikely to be automatically rejected on the basis of bad credit.

However, a lender may want to see proof that your business is on a steady financial footing before it is willing to approve a loan for a company with bad credit.

» MORE: Learn about business credit scores

How much can I borrow?

The amount that you can borrow using a secured business loan will usually depend on the value of the assets put forward as security. Most lenders are usually prepared to offer loan amounts up to the full value of the collateral.

What fees and charges are involved in a secured business loan?

There may be higher fees with a secured business loan than other types of loan because of the additional charges that come with assessing, valuing and then making legal arrangements for the assets being used as collateral. These are likely to be covered within an arrangement, booking or origination fee.

Some lenders might have a bank or wire transfer fee for paying the money into your bank account, and broker fees may be payable if one is involved with the transaction.

You should usually expect a penalty charge if you make late payments, and there may also be early repayment charges if you want to settle your loan early.

What rates are available?

The interest rate you’ll pay on business loans secured against property will usually depend on how much you’re borrowing, the term over which it will be paid back, and the size of the loan in relation to the value of the assets used as security. The smaller the loan as a percentage of the assets, the lower the rate of interest may be.

Poor credit may make it more difficult to secure the lowest rates that the best secured business loans offer, while start-up firms and those in a line of business deemed more risky by lenders may face a similar challenge.

How long does it take to receive funds?

The time involved with verifying assets and meeting legal requirements means arranging a secured business loan usually takes longer than arranging an unsecured business loan. Of course, timescales will vary from lender to lender, but two to three weeks is a benchmark that many aim to meet.

Are my business assets at risk?

The nature of secured business loans means that the assets you put forward could be lost if you don’t make the necessary loan repayments when you should. If you’re struggling to make payments on a loan you already have, talk to your lender as soon as you can.

What are the alternatives to secured business loans?

If you’re unwilling to use business assets as security or don’t have suitable assets available, there are various alternatives to a secured business loan you might want to consider. These could include unsecured business loans, credit cards, credit lines and business overdrafts, particularly when borrowing smaller sums.

» COMPARE: Business credit lines

Another potential option is invoice financing, where businesses can borrow funds against invoices they are waiting for customers to pay.

» COMPARE: Invoice financing

Or if your business is in need of new equipment, machinery or vehicles, asset financing can provide the opportunity to spread the cost of purchasing or hiring such assets.

» COMPARE: Asset financing

How does NerdWallet’s secured business loans comparison work?

Finding the right secured business loan for your company is easy with our comparison table. Simply select the criteria you’d like to sort the lenders by from the dropdown list and the table will reorder itself automatically.

Lenders can be sorted according to the minimum or maximum amounts they will lend, the minimum or maximum terms they offer, or the minimum turnover required of a company before they are willing to lend – our featured lenders are the default list.

Additional details about a specific loan, including eligibility criteria, can be found behind the ‘More info’ button. And even greater detail can be seen if you click ‘See Deal’.

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