Secured loan

This is a loan secured by assets, i.e. valuable items owned by your business. If your business stops making payments, the lender has the right to take the assets. Secured business loans are suitable for businesses that own assets (e.g. commercial property, vehicles and machinery) or for company directors that don’t want to offer a personal guarantee.

When it comes to business loans, there are two main categories: secured loans and unsecured loans. With secured lending the most important thing (in the eyes of the lender) is the security itself, whereas with unsecured lending the lender cares more about your business profile (i.e. trading history or credit rating).

Secured lending is usually cheaper than unsecured lending because there’s less risk for the lender.

Lenders prefer assets that can easily be resold, hold their value well, are important to your business and are more valuable than the amount you want to borrow. This should be no surprise since the point of a secured loan is that the lender can use the security to recoup losses if you default on the loan. 

When lenders value a business’s security for a secured loan, they will look at how ‘encumbered’ the security is (i.e. do you own it 100% or are there other parties involved?). 

In practice, you can use any valuable asset as security for a business loan:

• commercial property (e.g. offices, warehouses, shops)
• commercial vehicles (e.g. trucks, vans, cars)
• heavy machinery (e.g. plant machinery, printing presses). 

These are known as hard assets. Some lenders might also accept soft assets, e.g. unsold stock in your warehouse. 

You might also want to consider invoice finance (borrowing using your unpaid invoices as security) or asset-based lending (borrowing against assets on your balance sheet).