Secured business loan is a funding program in which you put up collateral in exchange of a lump sum of amount. In case you make all your payments timely, your collateral is secure. However, in case you default on your loan payments, the lender can take legal action against you to get the possession of your collateral.
Types of Secured Business Loans
Although the term “secured business loan” contains a huge range of programs, you can apply for several types. They include business equity loans, secured term loans, equipment loans, or even secured lines of credit. Each of these secured funding programs offer its very own specific set of benefits, and small business owners regularly turn to them when they have less-than-ideal credit since the collateral reduces the risk the lender takes on.
Business Equity Loans and Lines of Credit
Loans and lines of credit primarily based on your small business equity have numerous benefits; however most small business owners choose them due to the fact that they provide low interest rates even with a much less-than-perfect personal credit rating.
However, these lending products also are quite unstable on account that you may lose your small business – or a large portion of it – if you default for your payments. Most of the big banks that provide business equity loans and lines of credit require up to 75% of your business as collateral.
Business Equipment Loans
Many banks will even offer loans designed specifically for getting equipment. On this scenario, imagine that you possess a restaurant and you need to purchase a new fridge, commercial oven, and walk-in cooler. You can go to the bank and ask for a funding, and the bank may offer you with the funding if you placed the equipment up for collateral. Which means you will own the equipment when you make all of the payments, however if you default, the bank can take the possession of equipment.
Secured Term Loans
Secured term loans are another funding option, and banks tend to be very flexible about what you could use as collateral for this funding product. You can use the following things to present as collateral for getting secure term loans:
- Equipment
- Inventory
- Land
- Accounts receivables
- Mutual funds
When to Consider Secured Business Loans
A secured business loan is actually not the appropriate option for everyone; however, it can be appropriate in various situations. For instance, if your current retail location is a success and you want to open a second store, you can use your first place as collateral to get a secured business loan for the second location. Given that you foresee the business’ ability to continue to generate enough revenue to keep it running and repay the loan according to the terms, there is slight risk involved.
Secured business loans are superb alternatives for business owners who have less-than-perfect credit score or who need to avoid excessive fees and interest rates. However, it is important to take some time to evaluate your business in advance there is always a risk of losing property or equipment you use as collateral.
