Secured Business Loans

If you're looking for a loan and own a suitable asset, you could apply for a secured business loan. With this type of loan, you can use your asset as security to access competitive interest rates and higher borrowing amounts.

What is a secured business loan?

A secured business loan allows you to borrow against your assets. The asset will be used as security for the loan, reducing the lender's risk. Because of this, lenders are able to offer lower interest rates and higher borrowing amounts. On the other hand, if you default on the loan, the lender can take ownership of your asset to cover the cost of the loan.

Residential and commercial properties are commonly used as security. You may also be able to use equipment or another asset depending on the lender.

How do secured business loans work?

Here are some features typically found in unsecured business loans:

• Interest rates and fees. Compared to unsecured business loans, interest rates are generally lower. This is because your asset reduces the lender's risk of lending. As a result, lenders can offer better rates. There will be fees associated with this loan, including establishment and monthly account keeping fees. There will also be late payment fees.
• Type of interest. You can choose between fixed and variable rate loans.
• Loan amounts. Given that these loans are secured, borrowing limits are generally higher than for unsecured loans. You should be able to borrow from $1,000 upwards to $100 million, depending on your asset.
• Loan term. Loan terms for secured loans can range from 1 to 30 years.
• Application time. Applications for secured loans tend to take longer. There is additional documentation and proof of asset may be required. The lender may also require an asset valuation.
• Added features. The loan may come with added features such as additional repayments and redraw facilities.
• Eligibility. Some lenders may be more lenient than others, allowing borrowers with imperfect credit scores to apply.

What can I use as security?

When you offer an asset as collateral, the loan is secured by the equity of that asset. The assets most commonly used to secure business loans are:

• Commercial property
• Residential property
• Rural property

The loan to value ratio may differ based on the type of security offered. Residential property, for instance, may be able to fetch up to 80% of the property's value.

• You also don't need to own the property outright to offer it as security. You can access the equity in the property to get the funds you need.

Depending on the lender and the amount you wish to borrow, you may also be able to use other assets. This can include:

• Business vehicles
• Business equipment
• Business invoices
• Fine art

What can I use a secured business loan for?

You can use a secured loan for any business purpose. This can include buying commercial property, equipment or vehicles. You can use it to grow or expand your business, hire staff and buy inventory. You could also use the funds to buy another business, refinance debt or use the funds as working capital.

What are the pros and cons of secured business loans?

Pros

• Lower interest rates. Securing the loan comes with the advantage of lower and more competitive interest rates. This makes secured loans cheaper.
• Higher borrowing amounts. If you have big plans for your business, you may need a bigger loan. A secured loan has higher borrowing amounts than unsecured loans. You may be able to borrow up to $100 million, depending on your asset.
• Longer loan terms. Some secured loans offer terms up to 30 years.
• Imperfect credit scores may be considered. Given that the loan is secured, some lenders may be more amenable to borrowers with less than perfect credit histories.

Cons

• Risky for the borrower. This loan comes with the risk of losing your asset if you default.
• Longer processing times. There's more documentation involved so it takes longer to process secured loans.

How can I compare secured business loans?

When you're comparing business loans, watch out for:

• Interest, fees and comparison rates. Comparing interest rates is a good way to check if the loan is competitive. But you should also keep an eye on fees and the comparison rate. The latter takes into account interest and the fees you will be charged. It will give you an indication of the true cost of the loan. Some loans may charge low interest and high fees so it's always a good idea to check the total cost.
• Loan term. Some lenders may offer longer terms than others. Look for a loan that offers the term you want. That said, with a short term, you can expect higher monthly repayments. But with longer terms, you pay more in interest and fees. You can use a business loan calculator to get an idea of what your repayments will be like with different loan terms.
• Asset type. Look into what type of asset the lender requires. Some lenders may be open to using unconventional assets, like art, as security. Others may require some form of property only.
• Loan amount. Loan amounts vary depending on the lender. Make sure the amount you need is on offer from the lender. How much you can borrow will depend on your financial situation and the security offered.
• Loan features. If there are specific loan features you would like to have, make sure to check which loans offer these features. This can include early repayments, early exit without penalty and redraw facilities.
• Repayment flexibility. Look into whether the repayment schedule can be tailored to suit your business cash flow.

Is my business eligible for a secured business loan?

Each lender will specify what they require from their borrowers, and this may differ from lender to lender. You'll typically need to meet the following requirements:

• Business history. Most lenders will require your business to be of a certain age. This could be over 6 months or a year or two.
• Business financial strength. Lenders will look into your average monthly turnover. They will also look at your profit and loss statements and income projections. They need to know you can repay the loan.
• Asset requirement. Your asset will have to meet their requirements if you wish to qualify for the loan.

How can I apply for a secured business loan?

🤔 Work out how much you need to borrow, which asset you can use and what you can afford.
🔎 Start comparing lenders and loan products. Don't forget to compare interest rates, fees and eligibility criteria. You can use the comparison table on this page.
✅ Select a lender. Click "Go to site" to be directed to the lender's page, or "More info" if you want to read about the lender.
🖨️ Organise and prepare the required documentation. This will make the application process easier.
📱 Apply. Most lenders have their applications online.

Frequently Asked Questions

• What are the benefits of a secured business loan?

  A secured business loan can offer lower interest rates, higher borrowing limits and longer repayment terms compared to unsecured loans. Because the loan is backed by an asset, lenders view it as less risky and may give you more favourable conditions.

• Can I get a secured business loan with bad credit?

  Yes, it's possible. If you can provide adequate security, such as property, vehicles or equipment, some lenders may still approve your application, even if your credit history isn't perfect. However, you may face higher rates or stricter lending requirements.

• What types of assets can I use as security for a business loan?

  Common assets include residential or commercial property, vehicles, equipment, inventory or even accounts receivable. The asset must hold sufficient value to cover the loan amount and be owned by the business or borrower.

• What happens if I can't repay a secured business loan?

  If you default on a secured business loan, the lender has the right to seize and sell the pledged asset to recover their funds. This could lead to loss of property or equipment, so it's important to assess your repayment ability before securing a loan.

• How do lenders value assets used as security?

  Lenders typically use professional valuations, current market prices or recent sales data to assess an asset's value. They may lend up to a certain percentage of that value, known as the loan-to-value ratio (LVR).

• How fast can I get a secured business loan?

  The turnaround time depends on the lender and the type of security offered. Some online lenders can approve and fund applications within a few days, while traditional banks may take several weeks due to valuation and verification processes.

• Do secured business loans have early repayment fees?

  Some lenders charge break fees or early repayment penalties if you pay off your loan ahead of schedule. Always review your loan contract and ask your lender about any fees associated with early repayment.

• Can I refinance an existing secured business loan?

  Yes. You can refinance to get a lower rate, adjust your loan term or release equity in an asset. However, you'll need to consider any fees and whether your asset's value still satisfies the lender's security requirements.

• What documents do I need to apply for a secured business loan?

  Typically, you'll need to provide identification, business financials (such as profit and loss statements), proof of ownership for the security asset and bank statements. Lenders may request more details depending on your situation and loan size.

• Is a secured business loan tax deductible?

  Generally, the interest charged on a business loan can be claimed as a tax deduction if the funds are used for legitimate business purposes. It's best to confirm deductibility with your accountant or a registered tax adviser.

Written by

Alex Jeffs

Publisher

Alex Jeffs is the senior publisher for automotive content at Finder. He has tested vehicles everywhere from Tasmania to Oodnadatta. See full bio

Alex's expertise

Alex has written 51 Finder guides across topics including:

• Automotive industry
• Car finance
• Car insurance
• Personal finance