Secured Business Loans

Loans are among the most common, effective, and sought-after sources of business financing. With such, you can have your working capital so you can pay your employees or rent in good time


You can also use the funds to expand your business or acquiring a new asset. However, getting a loan with a bank, or most lending institutions can be such a hassle if your business is new or you have a poor credit score.


There can be an exception, though for business owners with collateral. They can have it easy. After all, the lender can still repossess the asset offered as security should the borrower default. What we’d otherwise call reduced lender risk.


In this article, we’ll dive deeper into secured business loans. We’ll tell you everything you need to know to get started. But first, here are the top lenders in the market;

  • Rep APR
  • Amount
  • Credit Score
  • 0%
  • $5,000,000
  • 530
  • 4.75% to 7.00%
  • $5,000,000
  • 640
OnDeck Capital
  • 9.99% to 99%
  • $5,000 to $500,000
  • 600
  • APR range
  • Fees
  • Terms
  • Amounth
  • Unemployment protection
Bank 1
  • 6.95%–35.89%
  • Up to 5% transfer fee
  • 3–5 years
  • $1,000–$40,000
  • No
Bank 2
  • 6.95%–35.89%
  • Up to 5% transfer fee
  • 3–5 years
  • $1,000–$40,000
  • No
Bank 3
  • 6.95%–35.89%
  • Up to 5% transfer fee
  • 3–5 years
  • $1,000–$40,000
  • No

Table of Contents

What is a secured business loan?

Also called collateralized business loans, secured business loans are types of business financing backed by the borrowers’ personal guarantee or any form of a valuable asset. That includes a car, land, boat, etc.


Such loan products come with reduced lender risks since the lender reserves the right to repossess the asset offered as collateral in case of a default.


But on the flip side, they come with lower rates and longer and more flexible terms so you don’t really feel the pinch. And, you might also hit higher loan limits.


Please note that, like we earlier mentioned, most lenders don’t easily loan a start-up business.


They categorize it as risky. But the whole idea of having collateral is to bridge this gap so you are in the same category as those with good credit scores with established businesses.

Hot Tip:

Take time to find lenders whose policies conform to your financial goals.

Requirements to qualify

Different lenders have different set requirements potential borrowers must meet to qualify for a loan. However, the law requires that the borrower should have attained the age of majority, usually 18 in most states, to make it legally binding.


You must also be a valid resident of the United States to qualify for the loan. Here’s a quick summary of the other requirements;


  • Collateral – You’ll need to offer your car, home, boat, or any other valuable asset to act as security for your loan. The value of the collateral should match, or surpass the loan amount. The lender can resell the item in a bid to recover your loan in case you default payment. That makes the loans risky to borrowers. However, they’re less risky to lenders hence possible higher loan limits, interest rates, and flexible repayment terms


  • Capital – how much have you invested in the business? What assets does it have? What assets does your business own? Different lenders will look at these factors differently


  • Annual business revenue – how much revenue does your business make annually? Different lenders have different business annual revenue requirements. That makes it hard for new businesses to acquire these loans


The process of finding a suitable lender is a long one, and a shortcut will only land you in trouble. While at it, take note of the interest rates, repayment terms, and loan limits.

Differences between secured and unsecured business loans?

Secured business loans Unsecured business loans
Requires collateral – you need a valuable asset to act as security for your loan. The value of your asset should be the same or more than the loan you are applying for. In case of a default, the lender will repossess and sell your item. If because of depreciation the resale value does not match the loan amount, the lender will resort to other recovery methods, all of which you’ll bear the cost
Do not require collateral – you don’t need to offer any of your assets as security for your loan. That makes unsecured business loans less risky to borrowers. However, they are risky to lenders who aren’t sure if you’ll repay your loan
Hardly any credit requirement – unlike their unsecured counterparts, secured business loan lenders don’t pay much attention to your credit score and repayment history. As the lender already has security, you won’t need to go to great lengths trying to convince them you’ll repay the loan
The lender pays more attention to your credit history – the decision as to whether or not to approve your loan relies heavily on your credit score and repayment history. Lenders basically look at your behavior with past loans. a low credit score will have many lenders denying your loan application. And, for the few who’ll accept, they’ll charge higher rates. Unsecured loans are, therefore, for borrowers with a strong credit score
Somewhat complicated application process – the application process for secured business loans includes collateral valuation, proof of ownership, and whether or not the item offered is acceptable. Such takes time and lots of paperwork
Simple and shorter application process – since you don’t need to offer any collateral, you’ll save the time you’d have used in valuation and proving ownership of the asset you offer as collateral. There’s also less paperwork involved and the loan takes a shorter time to be approved and wired to you

What can you use to secure a business loan?

There are lots of valuables you can use as security for your business loan. Lenders generally love liquid assets, ones that can be easily liquidated (converted into cash) should you default your loan. Such assets include;


  • Property – you can use your real estate property of home equity to secure your business loan. In fact, it’s a common type of security widely used by borrowers applying not only for business loans but any other secured loans, too. This category is not only limited to real estate but could also include vehicles, motorcycles, boats et cetera. However, remember offering your property as collateral means giving the lender express permission to seize it should you default payment


  • Savings – you can use a part of, or the whole of your savings to secure your business loan. However, you don’t want to do it in such a way that you jeopardize your future financial well-being. Loans secured by savings are also called passbook or cash-secured loans. Lenders especially love this type of collateral since it’s low risk. In case you default, they instantly get their cashback. They don’t have to break a sweat looking for a possible buyer for a physical property


  • Equipment – equipment collaterals also work the same way as property. But this is mostly used in the case of purchasing new equipment. You can use the same property as security for your loan


  • Invoice – not all customers pay instantly, at least in most businesses. Such affects business cash flow. To bridge this gap, the business owner can apply for a loan and use the unpaid invoices, which represent the company’s income, as collateral to apply for a loan. The whole process is called invoice financing


  • Inventory – if you seek a loan to add inventory, the same items bought can serve as collateral. Just as in the case of invoice financing, the inventory serves as security and will be sold should you default on the loan


  • Personal guarantee – in this arrangement, the lender makes you your loan’s co-signor. Therefore, should you default on the loan, you’ll be personally held liable. Your assets such as homes will therefore be repossessed by lenders in case you default your loan.


  • Blanket liens – this is a legal claim that comes with your business loan that allows to take over your assets should you default on the loan. This is a comprehensive lien type that will have a lender taking over any business-owned asset till your loan is fully repaid

How much can you borrow?

You can borrow from $5000 to $5,000,000 or more with most lenders.


How much you qualify for depends on the value of your collateral. A lender will only approve a loan they’ll able to recover it by selling your collateral.


Your relationship with the lender also plays a crucial role. You’ll get higher loan limits and low rates if you have a good standing with a lender.


The type of collateral you offer will also determine how much you can borrow. Borrowers offering savings as collateral are more likely to hit higher loan limits since such are less risky to borrowers.


However, remember, the higher your loan amount, the more the risk involved. You could lose your home, vehicle, or any other valuable asset offered as security. You, therefore, want to be sure you can bear the risks involved.


Again, only go for a loan if you absolutely need one.

Hot Tip:

Good standing with a lender will have them relaxing the loan terms so they are attainable to you.

Where to get secured business loans

For secured business loans, there are a couple of lender options you can explore. The most common one is traditional banks. These, offer secured business loans at average interest rates and loan terms.


However, their rates are often higher than those of online lenders and credit unions. Their application process tends to be longer and stricter. You’ll need more than your collateral to get a bank to approve your secured business loan.

Other viable options are online lenders. These often have the lowest interest rates. Since they don’t operate a physical office, they run on reduced costs. The saved money is then transferred to borrowers, offering them affordable rates.


Credit unions are also an excellent shot. They offer secured business loans at averagely lower rates and flexible loan terms. However, qualifying for a loan here depends on your existing relationship with the credit union.

Pros and cons of secured business loan

Pros Cons
Reduced lender risks – since you are offering collateral, which serves as an assurance to the lender that you’ll repay your loan. Failure to which, the lender reserves the express right to repossess your asset. The lender, therefore, will offer lower interest rates and more flexible loan terms.
Loss of asset – you risk losing the asset offered as collateral should you default your loan. The lender is allowed by law to resell them in a bid to recover the amount loaned out to you. therefore, be taking the loan, ensure you can stand losing the item you offer as collateral
Easy to qualify for – like we earlier mentioned, secured business loans come with reduced lender risks. Since you’ve offered your asset as collateral, the lender will more readily offer you a loan
Longer application and approval process – value appraisal and other necessary paperwork make the process of getting secured business loans longer and tedious. They may, therefore, not be suitable for funds for urgent business needs
Flexibility – as long as you have an asset you can offer as collateral, you can apply and qualify for a secured business loan, regardless of how long your business has been in existence

Frequently Asked Questions (FAQ)

These are loan products offered to businesses, backed by some form of collateral. In case of a default, the lender reserves the right to seize the asset.

Having collateral with a higher value makes it easier for you to get approved for a loan with most lenders. Secured loans generally reduce the lender risks hence the easy approval. Plus, the loans are available even to borrowers with poor credit scores.

Yes. As long as you have a valuable asset to offer as collateral, you are good to go. However, you may have limited loan options and higher interest rates.

You can use any valuable assets, as long as their resale value equals, or is higher than that of the loan you’re looking to apply. However, keep in mind that you could lose your asset should you default payment

Traditional banks, online lenders, and credit unions are the most common secured business loan lenders. The table above contains the best lenders in the market today.

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