Secured business loans

Secured business loans


min read

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What is a secured business loan?

A secured business loan is a type of loan where the borrower pledges assets as collateral. This means that if the company fails to repay the loan, the lender can seize and sell the assets to recoup their losses. This type of loan is often suited to companies with a healthy business credit score and assets to commit as interest rates are typically lower.

What can be used as  security for a business loan?

Various assets can serve as collateral, depending on the lender's requirements. Assets can be things like buildings, property, equipment, inventory, money, or what people owe you. The value and type of collateral will be assessed by the lender to determine the loan amount and terms.

  • Commercial real estate encompasses various types of properties, such as office buildings, warehouses, and retail establishments. The property may be either owned or heavily mortgaged.
  • Business owners can use their homes or other residential properties as collateral. However, this does entail a certain level of risk.
  • You can use your company's equipment as collateral. This can be machinery, tools. Any of the equipment that is essential for the operation of your business. Lenders will assess the condition and value of the equipment, as well as its potential resale value in case of default.
  • Vehicles, such as company cars or delivery trucks, can also be used as collateral. Lenders will consider factors such as the age, condition, and market value of the vehicles. Additionally, the lender may require proof of insurance and proper maintenance records to ensure the value of the collateral.
  • Inventory is another potential collateral for a business loan. This includes raw materials, finished products, or goods that are ready for sale. Lenders will evaluate the market value of the inventory and consider factors such as demand, shelf life, and potential obsolescence.
  • Accounts receivable can be used as collateral for businesses that have outstanding invoices from customers. This is known as invoice financing or accounts receivable financing. Lenders will assess the creditworthiness of the customers, the ageing of the invoices, and the likelihood of collection.
  • Cash savings or deposits can also serve as collateral for secured business loans.

It's important to note that the type and value of collateral required may vary depending on the lender and the specific loan program. Some lenders may have stricter requirements, while others may be more flexible. Business owners should carefully review the loan terms. They should consult with financial advisors to choose the appropriate collateral.

Example of a secured business loan

To better understand how a secured business loan works, let's consider an example. James is a small business owner looking to expand his bakery. He applies for a secured business loan from a bank, using the bakery property as collateral. James can offer this asset as security to secure a loan with a lower interest rate. This loan will also have a longer repayment period. With the loan, James can buy new equipment and hire new staff.

How to get a secured business loan

Funding providers have different requirements when you apply for a secured business loan. Most will review the following factors before making a decision:

Collateral: this provides loan providers with a form of security and can be anything of value that your business owns - such as property, equipment, or other assets.

Financial statements: loan providers will want to ensure that your business can afford to make monthly repayments on the investment and are likely to ask for your financial statements.

Business credit score: lenders will take your business credit score into account when making a decision. Find out how you can improve your business credit score.

Trading history: secured business loans are typically available to businesses that have been in operation for at least two years.

Personal credit history: you may also be asked to provide information about your personal credit history to support the application.


The pros and cons of secured business loans


  • often easier to qualify for than unsecured loans
  • lower interest rates
  • lenders are more likely to offer a higher loan amount.


  • you are putting your assets at risk if you can’t make repayments
  • new businesses might find it difficult to be accepted
  • may require more paperwork to prove asset eligibility.

Are all business loans secured?

No, not all business loans are secured. Unlike secured loans, unsecured loans do not require collateral. Unsecured loans are typically riskier for lenders, resulting in higher interest rates, smaller loan amounts, and more stringent eligibility criteria. Although with unsecured business loans, it’s likely that lenders will ask you to sign a personal guarantee to secure the loan.

Does a secured loan hurt your credit?

Obtaining a secured loan does not inherently harm your credit. But other lenders will be able to see it and it may impact any future application for additional finance. Plus, failing to make timely repayments or defaulting on the loan can negatively impact your credit score. It is essential to borrow responsibly and manage your loan obligations diligently to maintain a positive credit history.

Differences between secured and unsecured loans

Applying for a secured or unsecured business loan will depend on several factors such as your business history, asset value, and funding needs. A quick overview is:

Secured business loans: require collateral against the loan and often have lower interest rates since the funding provider takes on less risk.

Unsecured business loans: do not require collateral, meaning that the lender can’t sell your assets if something goes wrong - while often coming with a more speedy and simple application process.

Our Flexi-Loan is an unsecured business loan that is designed specifically for small businesses, with no early repayment fees and top-ups available if you need additional funds (subject to re-approval).

Are secured business loans easier to get than an unsecured business loan?

Secured business loans are generally easier to get than unsecured loans. The collateral lowers the lender's risk, so they are more willing to give credit to borrowers with less-than-perfect credit or limited business experience.

Are secured loans less expensive than unsecured loans? 

Secured loans are typically less expensive than unsecured loans due to the lowered risk for lenders. Secured loans are better for borrowers in the long run because they have lower interest rates and longer repayment periods.

Do banks prefer secured business loans? 

Banks often prefer secured business loans due to the reduced risk they carry. The collateral provides banks with a valuable asset they can seize in case of loan default, increasing their likelihood of recouping their investment.

Which banks provide secured business loans? 

Several banks and alternative lenders provide secured business loans, understanding the importance of such financial instruments for growing businesses.

Is a secured business loan right for your business?

The suitability of a secured business loan will depend entirely on your business. While they can come with lower interest rates and access to larger funds, you’ll be putting your assets on the line. Therefore, it’s important to determine the long-term impact on your business if things go wrong. You may want to consider alternative funding options before making a decision, such as:

Article updated on:
February 15, 2024

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Secured business loans

Secured business loans are a type of funding that require businesses to use their assets as collateral - meaning that they can be sold by the lender if things go wrong. This article discusses what secured business loans are, how they work, and their pros and cons.

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