Secured Business Loans: 2023 Ultimate Guide

If you're a small business owner, you may be considering secured business loans to help finance your business. These products are a good option for businesses that don't qualify for traditional bank loans and have assets that can help back the loan. These loans have a lot of moving parts to understand. Keep reading to learn more about them. Why Not Apply For An Unsecured Loan?  

What Is A Secured Business Loan?

A secured business loan is a financial product that requires you to put up collateral. This means you must offer some form of a physical asset to guarantee you'll pay the loan. These business assets can include company equipment, real estate, or stocks. Because there is a guarantee that the lender will get their money back (the collateral), sometimes these loans have lenient requirements and might allow people with lower credit scores to apply. This same reason allows lenders to offer lower interest rates and longer repayment terms. The loan amount varies based on the assets' value, the borrower's credit score, and business history. Small business owners can use these loans for any number of purposes. These include working capital or purchasing equipment. Businesses can also use them to start a new project or refinance an existing loan from another lender.

How Do Secured Business Loans Work?

Collateralized business loans need that the business owner puts something of value up to back this loan. This means that if they fail to repay the loan, the lender will take ownership of that asset and sell it to get repaid.

Current Secured Loan Interest Rates

The current average rates for secured loans are 3% to 36%.

Secured vs. Unsecured Business Loans

As we previously mentioned, a secured business loan is a type of loan where the borrower pledges some asset as collateral. In case of default, the lender will have to take ownership of the collateral pledged by the borrower for secured loans. On the other hand, unsecured business loans do not require any collateral. If there's a default, it's just going to be a matter of recovering unpaid debt from the borrower through other means. Unpaid unsecured business loans might involve third-party debt collectors.

Pros And Cons Of A Secured Loan

Advantages:

• Longer loan terms
• Better chance of approval
• Lower interest rates

Disadvantages:

• You put your assets at risk
• Slower to receive funding

Types Of Collateral For Business Loans

You may be wondering what lenders accept as collateral for a business loan. The following are all options:

Property

Property can serve as collateral for a business loan. The lender must determine the property's value and compare it to how much money the borrower needs. Some examples of property are:

• Vehicles
• Land
• Residential property
• Commercial property

Personal Guarantee

Personal guarantees are a common form of collateral for business loans. A personal guarantee promises to repay the loan if the business defaults. When you make that promise, you give up your right to claim bankruptcy protection. If you can't repay the loan, the lender may take control of your business assets, such as property and vehicles. A personal guarantee is not the same as giving someone power of attorney over your finances. It's simply a promise that you will repay the loan if it defaults. The lender will still check your credit score and financial history before approving the loan. Interest rates may be higher than those available to borrowers with better credit scores. You should only consider this option if you are confident in your ability to repay the loan. And you can take care of any other outstanding debts that you may have, such as a car or student loans.

Savings

Savings are another form of collateral for a business loan. Financial institutions will look at the savings account's balance and age. They'll also assess the history of deposits and withdrawals to determine whether to approve or deny your application. Because savings are liquid, the lender can access them at any time.

Inventory

Inventory is a valuable asset for any business. It is why many companies use it as collateral for a loan. The first step in using inventory as collateral for a business loan is to determine the value of your inventory. Some lenders will require an expert to evaluate your inventory to determine its value and provide you with an appraisal report. The report is evidence for securing your loan from your lender. Secondly, you must ensure enough cash flow coming into the company. Or verify that you have enough business assets to sell if you cannot repay the loan on time.

Equipment

The equipment you use in your business can also be collateral for a loan. This is a great way to get the funds you need without giving up any equity in your company.

Blanket Liens

A blanket lien is a lien that covers all the assets of an individual or corporation, regardless of the value of each asset. This is because they are less challenging to obtain than other types of security interests. They are also easier to use than other types of collateral because they can cover all property the debtor owns. Blanket liens are only for business loans, and people cannot use them as collateral for personal loans.

Invoices

Invoices are one of the most valuable assets a company has. They represent what the company has sold and hasn't received payment for. By submitting them to the bank, you can get an advance on the money you need to run your business until you get paid by your customers or clients. Invoices also provide a level of transparency for the lender. This means that they are more likely to provide funding for companies with good payment histories. Apply for a business loan

Types Of Secured Loans

Secured loans are the best option for people who have collateral to offer as security. However, there are a lot of different types of secured loans that you can choose from.

Term Loans

A secured term loan is a type of loan secured by collateral that the applicant repays over a certain period. These are great for covering cash flow gaps or making business investments. The average amounts range from $25,000 to $500,000. Each lender sets a different amount of time to pay it off, but it averages between 1 and 5 years. Interest rates for term loans vary from 5% to 25%.

Online Loans

Online loans can be short or long-term financing options for businesses. The terms and amount of an online loan vary greatly depending on the lender. Online lenders usually offer between $10,000 to $500,000 with interest rates ranging from 5% to 99%.

SBA Loans

The Small Business Administration (SBA) offers different types of small business funding to help small businesses grow. The government backs these loans. The SBA loan amounts up to $5 million. The term range from 5 to 25 years. Interest rates vary between 2.25% and 13%.

Equipment Financing

Equipment financing is a type of loan specifically designed to buy machinery and equipment. The borrower may be able to borrow up to 90% of the equipment's value. For equipment loans, the machinery you buy will work as the collateral itself. So this is a self-securing loan. The terms depend on the life of the equipment, with averages between 5 and 6 years. The interest rates vary between 4% to 40%.

Invoice Financing

Secured invoice financing loans are essentially a form of asset-based lending. Businesses use this loan when they need cash to bridge the gap between unpaid invoices and the need for capital. The lender will advance funds against receivables and get paid back in monthly or quarterly repayments. Like, equipment financing, this is a self-securing type of loan. This type of loan allows for borrowing of up to 85% of the invoice value. The fees and terms vary on how long it takes your customers to pay outstanding invoices.

Business Line Of Credit

A business line of credit is a revolving loan. The borrower can access any amount of money in the account as long as it doesn't go over the credit limit. Secured business lines of credit range from $10,000 to $1+ millions. Lines of credit do not have set terms, but once someone borrows money, there are payment schedules to follow. The interest rates vary from 7% to 25%.

Inventory Financing

The lender will provide a self-securing loan to buy inventory. Businesses usually use this loan when they need to buy more inventory but do not have enough cash on hand. An inventory financing loan can be between 50% to 80% of your inventory's value. Since the goal of most businesses is to sell inventory quickly, terms are typically under 3 years. The interest rates range between 8% to 10%.

How To Get A Secured Loan

Getting a secured business loan is not as difficult as it may seem initially. In fact, with a little bit of planning and research, you can get the funding you need to start or expand your business. Here are the steps you need to take to get a secured business loan:

1. Get your business plan in order. Potential lenders will check this document to assess your business and determine whether or not you are a good candidate for a loan.
2. Find the right lender. Shop around and compare rates and terms to find the best deal.
3. Prepare your application. Gather all required documentation, such as financial statements and tax returns.
4. Complete an online application. You will need to provide personal and business information, as well as details about your loan request.
5. Get approved and receive funding. Once approved, you will get the money you need to grow your business. Make sure to use it wisely!

At Camino Financial, we offer a straightforward application process. Plus, we don't require a business plan or collateral. That way, you can get business funding without risking your assets.

Should You Get A Secured Loan?

At the end of the day, only you can answer that question. You must look at your financial situation and business forecasts to see if a loan makes sense. You must consider the pros and cons of this type of loan. However, if you decide a loan is a good idea, you shouldn't focus on secured business loans. Unsecured loans are a better alternative because you don't put your business assets at risk. At Camino Financial, we don't want you to put your assets at risk. That's why we offer unsecured loans with minimal requirements and competitive terms. We understand that accessing traditional financing can be difficult for small businesses.

That's why we offer small business loans with easy qualification requirements and flexible repayment terms.

If you're interested in applying for a small business loan, apply today and get the funding you need to take your business to the next level. Apply now!