All you need to know about Secured Business Loans
As a small or medium business owner, you might have experienced a need for capital at some point in time. Financial institutions or finance brokers use various terms to define different types of small business loans. If you look for small loans online, you will come across various terms such as short term business loans, small business lending etc…However, there are majorly two types of business loans in Australia. Secured Business Loans and Unsecured Business loans. In this section, we will try and demystify Secured Business Loans for you.
When businesses seek a short term business loan keeping their property or any other assessable asset as security, it is referred to as a Secured Business Loan. The assets you pledge to seek loans are often called collateral or security. You can use either your residential property, commercial property, vehicles or machinery as security.
A Secured Business Loan is provided for a fixed period of time, within which you need to pay back the loan with agreed interest to reclaim your pledged asset. Because the loan is backed by collateral, the lenders tend to charge lower interest rates and provide the loan for a longer period of time compared to other business loan products. It is also considered less risky for the lender, as they can recover from potential losses in case of delinquent clients by taking possession of the asset.
What are the benefits of a secured business loan
- Lower interest rates - Unlike unsecured loans, which pose a higher level of risk for the lender, Secured Business Loans are deemed less risky and therefore are provided at lower interest rates. It is also easier to recover from the losses by liquidizing the secured asset in case of secured business loans.
- Longer repayment terms - Due to the less risk associated with secured business loans, lenders provide them for much longer time periods. The loan period depends on the asset pledged as security. For instance, commercial properties can help avail secured loans for up to 30 years.
- Flexibility to avail multiple loans - Secured business loan also provides flexibility in seeking more than one business loan at a time, if the business has another asset, which hasn’t been used as a security for any existing loan.
- Easier to obtain – All you need is an asset with an assessable value to obtain a secured business loan.
- Higher loan amounts – Secured Business Loans provide for larger loan amounts, as it involves lesser risk and greater flexibility.
What are the shortcomings of a secured business loan
While the benefits may make Secured Business Loans quite lucrative to choose, defaulting to repay the same may lead to your asset being seized by the lender. The lender sells the asset to recuperate from the losses incurred. Therefore, before applying for a secured business loan and pledging your asset, you need to evaluate your capability to repay the loan with the agreed interest rate.
- If you don’t have an asset that you can pledge to secure a loan, you will not qualify for a secured loan in the first place
- Secured Business loans often come with charges such as early repayment fees.
- If you fail to repay the loan, you run the risk of losing your valuable asset. And if the asset is essential to running your business, it could lead to huge businesses losses.
Applying for a secured business loan
One of the most critical aspects of a Secured Business Loan is the asset you pledge against the loan. The lender will evaluate whether the asset is valuable enough to cover the value of the loan in case of default. Apart from assessing the asset’s value, they will also evaluate the overall health of your business and in order to evaluate, they would seek certain documents which are listed below:
- Complete details of any income generated by the asset
- Copies of documents confirming the asset’s sale and transfer to prove ownership
- Details of an existing loan over the asset, if any.
- Copies of registered documents if any, that certifies the valuation of the asset
- Copy of insurance policy on the asset
How can Capital Boost help you with secured business loans?
At Capital Boost, we understand every business is different and so is their need. We don’t consider an application based on algorithms alone. Our structured approach ensures that your requirement will be pitched with the right lender, to ensure a fast, hassle-free loan without you having to do anything.
Every lender has criteria on who they lend to, how much they can lend, documentation requirements and time frame. At Capital Boost, we have partnered with multiple small business lending organizations to bring you just the right loan. We understand and evaluate your business and capital requirements before matching you to the right lender. We truly simplify your business finance by customizing your funding needs, and unlocking opportunities overlooked by others.
Frequently Asked Questions
Which assets can I use as Security?
Businesses usually use their commercial or residential property as security against securing a loan. Lenders also provide loans against vehicles, business equipment, gold or savings.
Am I allowed to sell the asset pledged as security?
You would need to take approval from the lender if you want to sell the asset which is used as security. It is in the lender’s discretion to allow you to sell the asset used as security.
How can I apply for a secured business loan?
The first step to secure a loan is to find the right lender, who provides loans at a convenient interest rate and is ready to use your asset against providing you the loan. For further advice, you can talk to our lending specialists on 1300 360 530. The lending specialists will collect documentation and assist you to complete the application process.
What if I don’t have an asset?
Apart from residential or commercial property, you can also use your savings, guarantees, and invoices as security. So, explore all your options before applying for the secured business loan.
Will I qualify for a secured loan in case of bad credit history?
Large banks are very particular about the applicant’s credit history, but there may be finance brokers such as Capital Boost who may provide more options. You can explore your options with those lenders who are ready to assist you seeking a loan with low credit scores.
At what interest rate do we get Secured Business Loans?
It depends on the lenders and the businesses applying for the loan. Factors such as asset value, credit history, repayment terms, cashflow, and others are considered before deciding the interest rate.
Our personalised approach ensures we are able to cater to the needs of our customers in a unique way. You can call us on 1300 360 530 or fill the form below to apply for a secured business loan.
For more information about Secured Business Loans, leave us a message