A secured business loan is a loan given by a lender that is secured against asset/assets. This security is used as a guarantee that if the loan isn’t paid, then the lender can take possession of the asset/assets to cover the amount owing on the loan. A secured business loan is best suited for borrowing large amounts to cover big purchases like vehicles and equipment, expansion or start-up businesses.
What can you use as security for a secured business loan:
A secured business loan uses personal or business assets as security for the loan. Some examples of security:
· Residential property/house or land
· Commercial property
· Equipment/stock
· Vehicles
· Value of your business
Benefits of Secured Loans:
1. Lower interest rates offered:
Opting for a secured business loan means you are usually given a lower interest rate than getting an unsecured business loan. The reason for this is because you are considered low risk to the lender. Offering up assets as security gives the lender assurances that if the loan is not paid there is something of equal or greater value to cover the loan, which means the lender can offer you a lower rate.
2. More options available:
Secured business loans give you more options when looking at taking out finance. Lenders feel more comfortable lending money to you when you put up assets as security. This will give you more choices when it comes to the loan amount, interest rates and terms of the loan etc. This will give you a better chance of finding and being approved for a loan that is best suited your business’s financial situation.
Related Article: Main Types of Business Finance Options
3. Higher chance of being approved:
With secured business loans, the requirements are usually a bit more lenient than an unsecured business loan. A lot of unsecured business loan lenders rely heavily on financial records, tax, credit file and strict eligibility criteria. Secured business loan lenders will still require certain documents and records however the requirements are not as strict. Having collateral for the loan gives the lender confidence in your ability to repay the loan which will give you an increased chance of being approved.
4. Larger loan amounts:
Securing assets against a loan will give you the possibility to borrow larger sums of money. This is because you are considered a low risk and therefore, lenders are comfortable lending larger amounts. The collateral offered as security needs to be of greater value of the loan amount, which will give you a bit of an idea of how much money you can apply for.
5. Less likely to default:
When taking out a secured loan, the thought of losing the asset you put up as security will help you to keep track of your repayments. No one wants lose important valuable assets so it gives you more incentive to make the repayments on time. This will help you to make the right decision on a loan that works into your budget which means you are less likely to default on the loan.
6. A great option for start-up businesses:
Starting up a business can be tough financially as the finance options for start-ups are minimal. A secured business loan is a great option for start-ups as you won’t be able to provide business financial records; this could be the deciding factor between getting approved and being declined for an unsecured business loan. Getting a secured business loan as a start-up will help to relieve some of the financial strain and give your new business every opportunity at success.
Related Article: 5 Tips for Startup Businesses
Whatever your business needs, a secured business loan is worth considering. It will give you more options and flexible loan terms to help reach your business goals sooner.
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