Your business will have to meet certain lending criteria to qualify for a secured commercial loan. Providers may look at:
Your business’s annual turnover
Your trading history
Your type of business
Before applying, check your business meets all the provider’s criteria to avoid having your application refused.
A secured business loan uses assets belonging to your businesses, such as residential or commercial property, as collateral to borrow money.
It's a way to access finance to fund business projects, help with everyday business expenses or cashflow over the year.
They work in a similar way to other loans. You borrow the sum your business needs and pay it back over a specific period at a set interest rate. You can even set up a business line of credit, taking out smaller amounts as required.
If you fail to pay the loan, however, the lender can take possession of the asset you put up as collateral instead.
Almost anything can be used as collateral for a business loan as long as it has value that can be assessed.
But - being a business loan - you can use non-physical assets as well as buildings, tools and machinery.
That means everything from your future orders, unpaid invoices and unsold stock can also be put up as collateral.
Here are some of the main assets lenders accept:
Property/Land - Much like a mortgage on a home, you can put up any property or land owned by your business as collateral for a loan.
Inventory financing - The computers, machines and materials you use to conduct your business can be used to secure finance - even furniture, appliances and food products count. Commercial vehicles are one of the more common assets used here.
Invoice finance - If you have a string of as-yet unpaid invoices outstanding, but need cash now to keep things ticking over, you can use them as collateral to borrow money.
A secured loan takes a little longer than a credit card or unsecured loan - because the lender needs to check what you're offering as collateral as well as your application.
That means to apply you'll go through a series of steps - the most common will include:
Prepare - Get hold of the necessary documents - these will be things like accounts, tax returns, a business plan and any financial documents about the assets you plan to secure against.
Research - Take a look at different lenders, loan terms and conditions and interest rates to find the best fit for your needs.
Apply - Decide which provider offers the best deal for you and fill in the application.
First check - The lender decides if it wants to go forward with the deal and what loan amount and interest can be offered.
Evaluation - The lender takes a look at the collateral offered to check it covers the loan amount.
Decision - Once checks are complete, the lender makes a call - deciding to approve or reject the application.
Outcome - If you loan is approved, you are sent forms to sign and provide the collateral. After that's completed the lender transfers the cash to you.
Here’s an example of how much a secured business loan could cost and the repayments your business would need to make:
Amount borrowed: £100,000
Collateral: Business machinery
Loan term: 10 years
Interest rate: 30% APR
Monthly repayments: £2,383.33
Total cost: £285,999.60
Unsecured business finance - whether it's a business credit card, overdraft or traditional business loan - doesn't put your assets at risk if things go wrong.
Against that, they might come with higher interest rates, be available for less time or offer less cash overall.
But it's always worth checking them out alongside secured options.
Depending on what you need the money for, you might be in line for a development or other grant.
There is funding available for new, environmentally friendly, equipment; research and development; regional growth and a lot more.
You can see what's available from the government by region here or check out your local council's website.
Business angels are people who have already made money and are now looking to support the next generation of entrepreneurs.
They'll often ask for a stake in your business - say 10% to 25% - but can often provide advice and contacts as well as cash.
The biggest problem is finding one, although the Angel Investment Network could be a good place to start.
As well as business angels, there are companies that invest in up-and-coming businesses in return for a stake in them too .
This is a more formalised process, the companies are looking to profit themselves too, but the idea is the same.
You give up a minority stake in your business, they hand over some funding. Tracking one down is, again, a potential issue - although FindVC and the British Private Equity & Venture Capital Association are reasonable places to start.
Private equity works a lot like venture capital - except the people providing cash in exchange for a stake in your business are a private fund rather than a public one.
This could be a group of people looking after the personal fortune of a family or trust fund for example. It means there might be fewer restrictions on who they offer money to, as it will be in line with a specific person's goals rather than a straight profit motive.
The British Private Equity & Venture Capital Association is a good place to look for investors.
Rather than convince a single person or firm to part with a lot of cash, crowdfunding offers the chance to get a lot of people to part for a little.
You can offer rewards in exchange for investments - from stickers to products or more - but might not get anything if you don't hit your funding target (dpesinding on the platform you choose).
For new businesses, Seedrs is a decent option, while indiegogo and Kickstarter are there for people looking to expand.
Unsecured business finance - whether it's a business credit card, overdraft or traditional business loan - doesn't put your assets at risk if things go wrong.
Against that, they might come with higher interest rates, be available for less time or offer less cash overall.
But it's always worth checking them out alongside secured options.
Depending on what you need the money for, you might be in line for a development or other grant.
There is funding available for new, environmentally friendly, equipment; research and development; regional growth and a lot more.
You can see what's available from the government by region here or check out your local council's website.
Business angels are people who have already made money and are now looking to support the next generation of entrepreneurs.
They'll often ask for a stake in your business - say 10% to 25% - but can often provide advice and contacts as well as cash.
The biggest problem is finding one, although the Angel Investment Network could be a good place to start.
As well as business angels, there are companies that invest in up-and-coming businesses in return for a stake in them too .
This is a more formalised process, the companies are looking to profit themselves too, but the idea is the same.
You give up a minority stake in your business, they hand over some funding. Tracking one down is, again, a potential issue - although FindVC and the British Private Equity & Venture Capital Association are reasonable places to start.
Private equity works a lot like venture capital - except the people providing cash in exchange for a stake in your business are a private fund rather than a public one.
This could be a group of people looking after the personal fortune of a family or trust fund for example. It means there might be fewer restrictions on who they offer money to, as it will be in line with a specific person's goals rather than a straight profit motive.
The British Private Equity & Venture Capital Association is a good place to look for investors.
Rather than convince a single person or firm to part with a lot of cash, crowdfunding offers the chance to get a lot of people to part for a little.
You can offer rewards in exchange for investments - from stickers to products or more - but might not get anything if you don't hit your funding target (dpesinding on the platform you choose).
For new businesses, Seedrs is a decent option, while indiegogo and Kickstarter are there for people looking to expand.
This depends on the lender. Some ask directors to give a personal guarantee to support the loan application.
It is the interest rate lenders must give to at least 51% of businesses who apply for these loans. The rate you’re offered may be different.
This depends on the sort of business you have and the sort of loan you take out.
If you are a sole trader, then a business loan can affect your personal credit score.
If your business is set up as a limited company, then business loans should not spill over into your personal credit score.
However, if you personally guarantee a business loan - that could affect your private finances.
There's nothing stopping you taking out a standard secured loan on your personal assets then using the money to fund your business.
However, in that case it will be your personal assets that are at risk if you don't meet the payments and your personal credit score that is impacted.
It depends on your business assets and finances. The lenders in this comparison offer loans up to £10,000,000.
We include loans and finance deals available directly from lenders and through brokers on our panel. They are all regulated by the Financial Conduct Authority (FCA). Here is more information about how our website works.
We have commercial agreements with some of the companies in this comparison and get paid commission if we help you take out one of their products or services. Find out more here.
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