What are secured business loans?
It’s relatively common for small businesses to take advantage of secured business loans for funding. Secured loans are any type of business funding secured by some type of collateral including:
- Personal guarantee
- Valuable assets
How do secured business loans work?
A secured business loan is a loan that is backed by an asset, such as equipment, inventory, or real estate. This type of loan is often used by small businesses that do not have the collateral needed to obtain a traditional bank loan.Â
Secured business loans typically have lower interest rates than unsecured loans, making them a more affordable option for business owners. In addition, secured loans are less risky for lenders, since the asset can be used to repay the loan if the borrower defaults.Â
As a result, lenders are often willing to offer more favorable terms on secured loans than they would on unsecured loans. For business owners who are looking to finance their businesses, secured business loans can be an attractive option.
Is it possible to get a secured loan for business use?
There are two primary types of business loans: secured and unsecured. A secured loan is one that is backed by collateral, typically in the form of property or equipment. An unsecured loan, on the other hand, is not backed by any collateral. Many small businesses opt for unsecured loans because they are easier to obtain.Â
However, it is possible to get a secured loan for business use. In most cases, the collateral required for a secured business loan will be some type of business asset, such as real estate or equipment. The exact collateral requirements will vary from lender to lender, so it is important to shop around and compare options before making a decision.Â
Common uses of secured business loans
Common uses of secured business loans include purchasing inventory, financing equipment purchases, and covering operational expenses. In each of these cases, the collateral used to secure the loan is typically an asset of the business, such as inventory or equipment. This ensures that the lender has some recourse if the business is unable to repay the loan.Â
As such, secured loans can be a useful tool for businesses looking to finance short-term needs.
Secured vs Unsecured Business Loans
The primary difference between secured and unsecured business loans is that secured loans require collateral. This provides the lender some security on the loan in the event the business defaults.
Let’s compare the pros and cons of secured business loans:
ProsÂ
- Lower interest rates
- Typically longer terms
- Higher loan amounts depending on collateral
- Easier approval
Cons
- Requires collateral
- Risk of losing assets if you default
- Most lenders require a minimum of 2 years in business under the same ownership
Let’s compare the pros and cons of unsecured business loans:
Pros
- No collateral required
- Easy application process
- Dischargeable in the event of bankruptcy
Cons
- Rarely exceed $50,000
- Often only offered to established companies
- Require great credit
- Higher interest rates
- Prepayment penalties
What can be used as collateral for a business loan?
Most lenders will have their own requirements defining what can and can’t be used as collateral.
Some examples of collateral for a secured business loan can include:
- Vehicles
- Buildings
- Inventory
- Any asset that has value
Do I need to have a good credit score to apply for a secured loan for my business?
Because secured loans involve less risk for lenders, they typically offer lower interest rates than unsecured loans. However, borrowers will need to have a good credit score in order to qualify for a secured loan. Lenders will also want to see that the collateral is sufficient to cover the amount of the loan.Â
For small business owners with strong credit scores and adequate collateral, a secured loan can be an attractive option for financing their business growth.
Do secured business loans impact credit?
When a business owner obtains a secured business loan, the loan is collateralized with an asset such as equipment, inventory, or receivables.Â
Because the lender has a lien on the business asset, the business owner's personal credit is not impacted. If the loan is not repaid, the lender can seize and sell the asset to repay the debt. In contrast, unsecured business loans are not collateralized and therefore may require a personal guarantee from the business owner. If the loan is not repaid, the creditors can attempt to collect from the guarantor's personal assets.Â
As a result, unsecured business loans can have a significant impact on an individual's credit score.Â
Which is better - secured or unsecured?
When it comes to business loans, there are two main types - secured and unsecured. Secured loans are backed by collateral, typically in the form of property or equipment. This gives the lender a degree of security in case the borrower is unable to repay the loan.Â
Unsecured loans, on the other hand, are not backed by collateral. As a result, they tend to have higher interest rates than secured loans. However, they can be easier to obtain, particularly for businesses that do not have a lot of assets.Â
Ultimately, the best type of loan for your business will depend on your particular circumstances. If you are confident that you will be able to repay the loan within a reasonable timeframe, then an unsecured loan may be the best option. However, if you have limited assets or your credit score is not strong enough to qualify for an unsecured loan, then a secured loan may be the better choice.
What are the monthly payments on an estimated business loan?
Assuming you're seeking a traditional business loan, the monthly payments will be determined by the loan amount, interest rate, and term length. For example, let's say you're looking to borrow $10,000 for your business at an interest rate of 5% with a term length of 3 years.Â
In this case, your monthly payments would be approximately $304.17. Of course, the exact payment will depend on the specific loan terms and conditions. However, this gives you a general idea of what you can expect to pay each month if you're approved for a business loan.
How hard is it to get approved for a secured business loan?
Secured business loans are typically easier to obtain than unsecured loans, as they involve collateral - usually in the form of business assets - that the lender can claim if the borrower defaults on the loan. However, that doesn't mean that securing a business loan is a simple process. Lenders will still want to see a well-crafted business plan and evidence of financial stability before they approve a loan.Â
In addition, the value of the collateral must be sufficient to cover the amount of the loan - meaning that borrowers will need to provide substantial equity in order to obtain a secured business loan.
How can I qualify for a secured business loan?
There are a few things you can do to make sure you qualify for a secured business loan. First, make sure your business is in good financial standing. This means that you have been profitable for at least two years in a row and have a good credit score.Â
Second, put together a detailed business plan that outlines your goals and how you plan on using the loan to reach those goals.Â
How to get secured business loans
Traditional Business Term Loans
A traditional business term loan is typically a bank loan with terms between 1-25 years and monthly repayment. This can be one of the lowest cost options but qualifying can be a challenge.
Let’s compare the pros and cons of a traditional business term loan:
ProsÂ
- Low fixed interest rates
- Predictable monthly payments
- Available for many uses
Cons
- Time consuming application process
- Difficult to qualify
- Typically require a personal guarantee, healthy financial, and collateral
SBA Loans
Small business Administration (SBA) loans are a government resource that was created to help improve the U.S. economy. SBA loans can help small businesses and would-be entrepreneurs obtain financing opportunities. Lenders and banks are offered a guarantee on SBA loans in the event that the business defaults.
ProsÂ
- Can help new entrepreneurs, new businesses or businesses lacking credit
- Typically lower monthly payments
- Restructure debt at better terms
- Usually structured without balloon payments
Cons
- Higher interest rates
- More paperwork and length approval process
- Good credit typically necessary
Business Lines of Credit
A business line of credit can be similar to a credit card in the sense that it typically has a limit and can be used however you want.
ProsÂ
- Helps balance cash flow
- Only pay interest on the amount you use
- Increase buying power and take advantage of more opportunities
- Build business credit history
Cons
- Fees and extra charges
- Qualifying can be difficult
- Potential for misuse
- Lower borrowing limits
Who are the best secured business loan providers?
Funding Circle
Funding Circle is a top-rated provider of secured business loans. Typically the approval process takes 5-14 days.
ProsÂ
- Quick & easy online application process
- Transparent terms
- Use loan proceeds for almost any business purpose
- Backed by a Who’s Who of equity investors
Cons
- Requires a personal guarantee from owners and a lien on business assets
- Penalty on late monthly payments
- Better options for larger loans
» MORE: Funding Circle Small Business Loans Review
LendingClub
LendingClub is an online peer-to-peer lending platform that offers secured business loans.
Pros
- Typically lower interest rates than most competitors
- Clear and upfront terms
- Easy application and fast approval
- Secure platform to ensure safety
Cons
- Application requirements can be time consuming
- Works hard against default accounts
» MORE: LendingClub Small Business Loans Review
OnDeck
Founded in 2017, OnDeck is one of the largest online small business lenders in the U.S. that provides secured business loans.
Pros
- Transparent terms
- Access to loans through business debit cards feature coming soon
- Funds available quickly
Cons
- Higher APRs
- Origination fee
- No factoring offered (all funding options incur debt)
» MORE: OnDeck Small Business Loans Review
Kabbage
Kabbage launched in 2008 and is an online lender that provides secured business loans for small businesses.
ProsÂ
- Access approved funds whenever you need them
- Credit score not considered in approval process
- Quick funding
Cons
- Confusing repayment process and fee structure
- Short repayment terms ranging between 6-12 months
- Limited product offering
» MORE: Kabbage Small Business Loans Review
BlueVine
BlueVine is a fintech company that provides secured business loans for small to medium sized B2B or B2G businesses.
Pros
- Majority of business is repeat
- Diverse and rich funding sources
- Invoice factoring 100% online
- No hard credit checks
Cons
- No funding for B2C entities or freelancers
- Personal FICO score 600 or above preferred
- Factoring transactions are full-recourse
» MORE: BlueVine Small Business Loans Review
Fundation
Fundation provides secured business loans ideally for established businesses with fair or better credit scores.
Pros
- Quick funding solution (Especially if you have good credit!)
- Low interest rates for good credit borrowers
- Loan terms between 1-4 years
Cons
- Origination fee
- Bi-monthly payment options
- Minimum annual revenue $100,000
- Minimum credit score is 620
- Minimum 1 year in business
» MORE: Fundation Small Business Loans Review
How can I get a business loan without collateral?
Plenty of lending options that don’t require collateral are available such as SBA loans or unsecured business loans. However, secured business loans are typically offered with lower interest rates and longer repayment terms.
Are secured business loans a good idea?
Business loans can be a great way to get the funding you need to start or expand your business. However, it's important to carefully consider all of your options before taking out a loan. One type of loan that you may be considering is a secured business loan.Â
With this type of loan, you'll put up collateral, such as property or equipment, in order to secure the loan. There are some benefits to this approach. First, it may give you access to lower interest rates.Â
Second, it may give you more time to repay the loan. However, there are also some risks. If you default on the loan, you could lose your collateral. As a result, it's important to weigh the pros and cons of secured business loans before making a decision.
Conclusion
In conclusion, a secured business loan is an attractive option for a low-rate loan that can help take your business to the next level. Ready to take the next step? Apply online in minutes at PrimeRates.com and receive multiple personalized loan offers. You can efficiently compare offers and select the offer that best fits your needs. Once your loan is finalized you can receive funds quickly. Ready, set, save time and money at PrimeRates.com.
