- What is a secured small business loan?
- How does a secured business loan work?
- Who are they for?
- What can I use one for?
- What are the advantages/benefits?
- What businesses qualify?
- What can I secure against one?
- Do Capify offer secured business loans?
Overview of secured business loans
To operate effectively, businesses require various types of funding. As well as your working capital and revenue streams, you may have backing from investors and you may have invested a significant proportion of your own funds into the company.
When it comes to buying new stock, expanding or introducing new products and services, however, additional funding may be required. Secured small business loans are a popular funding choice as many business owners opt for this type of financing.
Do you want to expand your business? Could you bring in more revenue by operating in a different location? Does your company equipment need updating or modernising? If so, a business loan may enable you to access the funds you need and a secured small business loan could be an easy way to obtain financing.
Available from a range of lenders, secured small business loans provide access to a considerable amount of capital and may allow business owners to achieve their objectives. However, secured loans aren’t always the right choice for small businesses. Before applying for a secured loan or committing to a particular type of funding, it’s vital that you find out more about the funding options available and obtain financial advice when it’s necessary to do so.
A secured small business loan is a credit or advance which is paid to a small business by a lender. The business will then repay the loan, along with a set amount of interest. A secured loan offers additional protection to the lender because the business puts some or all of its assets up as collateral. This means that if the business fails to make repayments, the lender has the right to seize assets.
Generally, businesses are required to pay back secured small business loans on a monthly basis. Most lenders will set out strict repayment terms when they offer you a loan and the amount of interest you’ll pay will be built into your monthly repayments.
Secured small business loans are fairly straightforward and they can be obtained by companies or organisations which hold assets. If your company owns its premises or owns a lot of valuable equipment, for example, these could be used as collateral when you apply for a secured small business loan.
However, lenders will not merely accept your own valuation of your assets. As well as proof of ownership and purchase value, lenders may require an independent valuation of assets before they will be accepted as collateral.
Once you have this information, you’ll be able to see what types of deals are available to you. Every lender may offer different interest rates or repayment periods, for example, so it can be beneficial to shop around and get the best type of loan for your business.
If you apply for a secured small business loan and are accepted, the funds will usually be available fairly quickly and could even be transferred into your business account within a few days. Depending on the terms of your contract, you’ll begin making repayments straight away. In most instances, companies are required to make repayments on a monthly basis but some lenders may offer payment breaks or ‘repayment holidays’.
Typically, secured small business loans are aimed at businesses which have some form of assets. Assets could include property, machinery, manufacturing equipment and vehicles, as well as industry or business-specific paraphernalia.
Due to this, secured loans are most suited to businesses which require these types of assets in order to operate. A manufacturing business, electronics company or fleet management firm may own a considerable number of valuable assets, for example, and this could enable them to raise a significant amount of funds via a secured loan.
Businesses which are able to operate without assets may be less suited to asset-based funding, simply because they won’t have the assets necessary to raise a considerable amount of funds. If your business operates from rented premises and functions with minimal stock or equipment, for example, the company’s assets may be fairly limited. As you won’t be able to offer any form of asset-based security to the lender, you’ll be less likely to qualify for this type of funding.
Business loans can be used for a range of purposes but they’re commonly used to expand or grow the business in some way. If you want to open a new branch in a new location or purchase new equipment to increase production, for example, a secured small business loan can provide the funding you need upfront and enable you to pay it back in regular instalments.
Perhaps you want to launch a viral marketing campaign, refurbish your premises or need to undertake urgent repairs? If so, a secured small business loan could provide the capital you need to keep your company operational and allow you to increase your revenue in the long-term. Designed to facilitate business growth and expansion, a secured small business loan can be use to achieve your corporate objectives and business ambitions.
Of course, lenders may ask for specific details about your intentions when you apply for a secured small business loan and your business plan may affect the success of your loan application. If the lender considers your business objective to be viable, for example, they may be more likely to offer you a loan.
Whilst secured small business loans can be used in numerous ways, there may be restrictions or limitations within your loan agreement. If so, you’ll only be able to use the funds in accordance with your contract or loan agreement.
When businesses are able to obtain secure loans they can benefit from relatively low interest rates. As lenders have an interest in business assets and can seize them if the loan isn’t repaid, this type of lending is typically less risky for them. Due to this, lenders are often willing to lend with more flexible repayment terms and with lower interest rates. Overall, this means businesses may benefit from paying less interest on a secured loan and, therefore, reducing their outgoings over the lifetime of the loan.
Almost any type of business can qualify for a secured loan, providing they have the assets to offer as collateral. Lenders are generally more interested in the capital, assets and revenue of a company, rather than the industry in which they operate.
Many lenders will only offer secured small business loans to companies which have traded for a certain amount of time, although this varies between loan providers. Similarly, some lenders may stipulate that businesses must have a certain level of revenue before they qualify for a secured loan.
However, lenders have additional security due to the secured nature of the loan so businesses may be able to access more flexible terms, providing they have the appropriate amount of collateral in the business.
In order to obtain a secured small business loan, the business must own assets in some form. Of course, the assets needed will depend on the size of the loan. If you wish to borrow £10,000, for example, a lender may accept fairly modest assets, such as a selection of company equipment which meets this value. Alternatively, a secured loan of £100,000 will only be provided if the business has assets worth this amount. In such cases, business properties, vehicles and plant machinery are often used to secure the loan.
If the business does not own enough assets to obtain a secure small business loan, loan providers may still be willing to lend if the company director or directors offer a personal guarantee. This means that their personal assets, such as their home, can be used as collateral in order to obtain a secured small business loan.
Capify specialise in business funding and we can help you to obtain the right type of finance for your business. Offering both unsecured business loans and merchant cash advances, our financing options provide a workable alternative to traditional secured loans.
Available to all types of businesses, Capify business loans are perfect for limited companies with at least 6 months of trading history. Whilst you may not have the assets to obtain a secure small business loan, a Capify business loan will ensure you can access much-needed working capital and grow your business accordingly.
Alternatively, a Capify merchant cash advance offers increased flexibility to small businesses. Aimed at companies which accept debit and credit card payments, a merchant cash advance allows you to access the funds you need and allows you to make repayments via a percentage of your daily card payments. With no collateral required, a merchant cash advance is available to a wide variety of businesses and ensures companies can access the capital they need, regardless of their size.
To find out how much funding you could obtain, why not try our small business loan calculator now?
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