Assuming you select a loan term you can comfortably afford, borrowing money can free up cash flow or better yet—propel your business into a new phase of growth.
But, with hundreds of loan options out there, you might be wondering: is secured finance right for me? Before you sign those papers and start snapping up new sales, be confident that secured finance is the best way forward.
If you don’t have time to do your research, or feel a headache coming on at the thought of applying for finance, simply speak to a lending expert who will do the heavy lifting on your behalf.
What is a secured business loan?
When you take out a secured business loan, you need to provide your lender with collateral, which is essentially a form of security. When taking out a business loan, you’ll typically secure it with a property. On the other hand, equipment loans use machinery or other physical assets as collateral.
The purpose of collateral is to reassure your lender that if you default (touch wood), they’ll be able to pay off your loan themselves with your asset. In other words, you’re giving your lender peace of mind with a back-up payment plan.
Why secured finance?
A secured business loan is always backed by collateral, unlike unsecured finance, where collateral is not required.
Collateral can take the form of any physical asset, provided it has significant value. An appropriate form of collateral will depend on the type of loan you’re taking out—your lender will determine the value and suitability of your asset/s before proceeding with your application.
Secured finance is offered by both banks and alternative lenders, so there are lots of options to choose from. Here’s why businesses turn to secured finance over alternative forms of lending.
1. Lower interest rates
Unsecured finance is risky for your lender, because your loan is not backed by security. On the other hand, secured finance is a more comfortable option for lenders because they have something to fall back on if you default.
Because of this, your lender can justify lending to you at a lower interest rate. That’s why many established businesses with access to collateral choose secured loans.
2. Greater borrowing power
Again, due to the dependable nature of secured finance, your lender can comfortably lend more money and offer longer terms.
Longer terms can help you build up or maintain a positive credit history, while ensuring cash flow remains stable and interest rates, low.
In addition, being able to borrow a larger sum of money makes secured loans ideal for rapidly expanding businesses or big investments, like:
- Property purchases
- Refinancing debt
- Business acquisitions
- Share buyouts
- Business expansions
3. Ideal for larger, established businesses
As mentioned, established businesses with access to collateral often take advantage of secured loans for their low interest rates and potential to fund larger business initiatives.
But, regardless of how established your business is, you should have a solid plan on how you’ll meet your repayments before signing on the dotted line.
Failing to pay off your loan can leave your business in a vulnerable position and damage your credit score, ruining your chances of securing credit in the future.
Don’t risk it—speak to a secured lending specialist today and make an informed decision, based on your unique business needs.
Mikal manages our Commercial and Development Finance team here at Valiant. He works closely with our talented lending specialists to deliver quality outcomes for clients looking to expand their business.