Secured business loans are a type of business loans where borrowed funds are securitised by company assets used as collateral. If the business fails to honour repayments, these assets can be claimed by the lender. In this respect, secured business loans are very similar to asset-based loans.
Secured business loans are very widespread and usually easier to get than unsecured business loans - as long as businesses have sufficient assets to put in the balance, of course. This is because the risk involved is much lower than unsecured business loans. This also explains why these types of loans usually cover large borrowings, worth hundreds of thousands of pounds or millions of pounds. This also explains why these types of loans are usually subscribed for many years, sometimes more than twenty or twenty-five years.
Director’s guarantee will often be required by lenders in order to issue such loans. This means that one or more directors of the company will have to also put their own personal assets in the balance, as a second-level type of security in case repayments cannot be honoured.
This all leads business owners to understand that if these kinds of loans are much more secure for the bank, they are much riskier for the business. Other disadvantages of these types of loans include the fact that terms, especially terms related to repayments are usually not flexible, the fact that early repayments usually trigger penalties, and the fact that these loans may take months and piles of paperwork to get set up.
- What business loan can I get?
- What are asset-based loans?
- What is business loan protection?
- What is an unsecured business loan?
- What is business loan repayment insurance?