Secured Business Loan? Here’s Why You Need One and How To Get The Lender To Say Yes!

 

What is a secured business loan?

You are probably more familiar with this type of loan than any other. 

Simply, you borrow money using your home, commercial property or business assets as security.

Lenders are very happy about that. 

It means their risk is reduced and you’ll pay less – the interest rate can be half the cost of an unsecured loan.

So, in terms of funding your business, it should probably be at the top of your options list – assuming you have assets to offer to the lender.

If not, that’s another story.  Read this article on unsecured business loans.

 

How does it work?

These loans are generally for a set term of between 12 months and 60 months but can be much longer.  You make repayments in regular instalments.  The interest rate can be fixed or variable.  The loan amount can be determined by the value of the security and the strength of your business.

 

Why you would choose a secured business loan?

  • You want lower interest rates.
  • You want to borrow a large amount for a longer period.
  • You have assets with which to secure the loan.
  • Your business has been around for a few years.
  • You can demonstrate how it has prospered under your management and expertise.

 

What could you use a secured business loan for?

The purpose of the loan will often determine whether it is a good choice or not.

Business owners who take this option do so for the following reasons:

To buy fixed assets such as factory equipment.

To buy significant inventory.

To buy another business.

To fund business growth.

 

What you should know about a secured business loan

If you sit outside a lender’s eligibility rules, don’t waste your time.

Work out the total cost of the loan including the interest rate as well as any set up or ongoing fees.

Recognize that the longer the repayment term, the more you will pay in interest so adjust the term to suit your needs.

Ascertain if there are fees for early repayment, late payments or over payment.

Discover what types of assets or property the lender accepts.

 

How to successfully apply for a secured business loan

Review the lender’s eligibility criteria and ensure you fit with it.

Pull all your financial documents together.  They should demonstrate that your company is profitable and has the cash flow which permits you to make timely repayments.

Provide valuations for assets you are offering as security.  Having your own might help you decide whether going through the rigmarole of an application is worthwhile.  If property is involved the lender will arrange its own valuation, but some lenders will allow you to assign a valuation from a registered valuer.

Have a long term plan for your business which shows why you will be a great customer.

Ensure your credit report is clean.   A few blemishes won’t hurt if your security is valuable, but major defaults or bankruptcies will hurt you.

Be prepared to wait.  These types of loans can take a little longer to be processed.