Secured Business Loans

Last updated 01 Mar 2019
Often referred to as a traditional loan, a secured business loan is a loan made by a bank or finance company where the lender requires the borrower to pledge assets as collateral against the loan. Collateral can take the form of property, a large piece of equipment or vehicle, savings, inventory or personal assets. Should the borrower default, the bank or lender may sell the asset to recover the amount owed. Because of the reduced risk for the lender, businesses that are able to pledge collateral often find that secured business loans are the least expensive form of finance.

According to the Australian Banking Association, 29% of small business have outstanding property loans or other long-term loans, second only to credit cards at over 50% of small businesses.
Key Features
Loan Size
$50k to $5m
Loan Term
1 to 10 years
Interest rate
3% - 12%
Approval Speed
Slow
Common Uses of Secured Business Loans
Secured loans are less expensive than most other forms of loans as the bank or finance company is assured that they will be able to recover most or all of the loan by selling the pledged collateral in the event of default.
The reduced risk also means that lenders are happy to lend larger amounts for a longer time.
Secured business loans are therefore ideal for large one-off investments such as major property or equipment purchases, large scale renovations or expansions.
The longer term and lower cost of secured business loans also allow growing businesses to plan and reinvest in growth without the worry of loans expiring in the near term.
Keep in Mind
Borrowers should be aware that application and approval process for secured business loans can be time consuming and long as lenders will want significant proof of the pledged asset’s existence and value.
Businesses often also have to provide lenders with historical financial statements and/or a business plan.
It may not be possible to repay the loan early without incurring sizeable prepayment penalties.
Who Qualifies for a Secured Business Loan?
Most importantly, borrowers need to own an asset that can be used as collateral such as a property or another valuable asset such as a piece of equipment or inventory.
Lenders may look past a weak credit history or little operating history if the borrower is willing to pledge a valuable asset such as a business or personal property as collateral.
Prospective borrowers looking for very large sums will still need to show a minimum of 2 year operating history and strong financials.
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