Secured Business Loan Qualification
How do you know if your business is eligible?
- Time in BusinessAt least one year
- Annual RevenueAnnual revenue of $100,000
- FICO ScoreAt least 500
What Are Secured Business Loans?
Secured business loans also called collateral based business loans and are a type of traditional financing where you can secure business funding with bad credit by pledging personal and business assets as collateral. By using collateral, you are providing a guarantee to the lender that you’ll repay the loan with interest. If you default on the loan, the lender will take ownership of the pledged assets to recoup the loan. The collateral not only puts the lender at ease, but also makes the borrower more invested in business financing.
The main difference between secured business loans and unsecured business loans are the pledging of collateral. A secured loan is secured via collateral (e.g. equipment financing or property) for the loan, which the lender possess in case you default on the loan. On the contrary, unsecured startup business loans with bad credit don’t require any collateral, and the lender can’t take possession of your property in case you default on the loan.
- Secured loans are less risky and carry lower interest rates
- The more valuable your collateral is the higher loan amount you can qualify
- Flexible repayment terms give the borrower more control
- These business loans for poor credit are easier to obtain with bad credit since they rely on collateral
- The biggest downside is the potential loss of assets (collateral) in case you default
- Defaulting can also damage your credit and your ability to borrow in the future
- The interest rate will be varying continuously, based on the nature of your loan
Collateral Based Business Loans
The collateral used to obtain a secured business loan must be something of substantial value. The lenders want to have collateral with enough monetary value for a business loan to recoup the loss in case a borrower defaults. Before applying for business loans, make sure to consider all your business loan options, both secured and unsecured. If you default on a loan, the lender can take possession of the collateral and sell it to recoup the loss. In addition, if the collateral doesn’t cover the debt value, the lender can take additional financial recompense.
The following are some of the most common types of collateral you can use for a business loan:
Secure a loan with Guaranteed Business Loans
Are you thinking about taking an adverse step because you don’t have any valuable belongings such as a car, house, or a yacht to offer to the lender?
In case of any discrepancy and failure to pay the debt, the borrower is personally responsible for the damage. Agreeing upon a personal guarantee means giving the lender the autonomy to see whatever and whichever asset he sees appropriate.
The lender is offering you the money and giving you a chance to boost your business. Do you think the lender will suffer the loss? A thin line difference between the two exists, the lender can only seize the asset mentioned by the borrower in the case of a collateral guarantee. And in the case of the personal guarantee, the lender has the right to seize any of your assets.
Now that you have agreed to offer a personal guarantee. The next step is to choose from the two types: Unlimited Personal Guarantee and Limited Personal Guarantee.
Securing business loans with an unlimited personal guarantee means the lender will have control over borrower's assets until and unless the borrower makes the repayment on time. The lender has the liberty to seize borrower's car, house, or any valuable. This business funding option is full of risks; let’s assume the borrower fails to make the repayment on time, and now the lender is asking for the money. The lender will have control over borrower's valuables, and it will be difficult for him/her to pay the pending debt. So, before you decide to go with Unlimited Personal Guarantee, it is recommended to analyze and evaluate your every step.
A limited Personal Guarantee is only a good option when you are not the only one running the empire. If you have partners and all you have decided to apply for a secured business loan. In case, the borrower fails to make the repayment on time; all the business partners will share the consequences equally. As compared to an unlimited business loan, a limited business loan is a safer and less risky option.
Secure the growth of your business with secured loans
Types of Secured Business Loans
Remember—almost all loans are secured business loans somehow. Therefore, it’s important to review the loan agreement before signing on the dotted line. Even when you’re not providing any collateral for a loan, the lender may be requiring a personal guarantee or putting a lien on your business assets. Here are the most common types of secured business loans you’ll come across:
Sometimes your business needs a new piece of equipment or an upgrade to boost performance. Buying that new equipment or upgrade is costly. This is where equipment loans for startup businesses can help. The loan amount typically depends on the equipment type, the price, and whether it’s new or used.
Even with the SBA guaranteeing a percentage of your loan, you’ll also have to secure it yourself. With an SBA loan, you can secure loan amounts up to $5 million with terms of five to 25 years. The interest rates vary based on the SBA loan program you choose, but you can expect it around 4% to 13%.
A business line of credit also called a revolving line of credit offers quick access to a credit limit that you can draw from and use as and when needed. Once you repay the amount you use with interest on the used amount only, your credit limit goes back up to its original amount. Business lines of credit offer both secured and unsecured business funding options.
If you can provide collateral (real estate, personal guarantee, equipment, invoices or Inventory), you should consider a secured line of credit. This way, even if you don’t have a decent credit score or low business revenue, you can easily qualify for higher credit limits at lower rates. Business lines of credit offer loan amount from $5,000 to $1 million with a typical repayment period ranging from six months to five years. You will only pay interest on the amount you draw from your credit line, and the interest rates can range from 5% to 25%—based on your eligibility.
Sometimes your business needs a new piece of equipment or an upgrade to boost performance. Buying that new equipment or upgrade is costly. This is where equipment loans can help. The loan amount typically depends on the equipment type, the price, and whether it’s new or used.
The equipment itself acts as collateral for the loan, and if you default on the loan, the lenders can take possession of the equipment to recoup the loss. The Interest rates on equipment loans usually range from 8% to 30% but can go higher if your credit rating is less-than-stellar.
In exchange for guaranteed cash advances, they will charge a 3% processing fee and a “factor fee” of about 1% each week it takes your customers to pay their invoices, on the amount they hold in reserve. After your customers repay, you’ll get the remaining percentage, minus the fees. If your clients don’t repay, the invoice financing company can only collect up to the initial amount of the outstanding invoice—keeping your personal assets secure.
In exchange for advancing you money, they will charge a 3% processing fee and a “factor fee” of about 1% each week it takes your customers to pay their invoices, on the amount they hold in reserve. After your customers repay, you’ll get the remaining percentage, minus the fees. If your clients don’t repay, the invoice financing company can only collect up to the initial amount of the outstanding invoice—keeping your personal assets secure.
Traditional term loans affordable loan products and the most common type of secured business loans where you borrow a lump sum of money, which you’ll repay over a predetermined period with interest. Generally, you can secure the loan amount from $25,000 to $500,000. The loan terms vary from lender to lender but typically range from one to five years with interest rates from 5% to 25%.
Merchant cash advances, also called business cash advances are a quick way to obtain working capital upfront, allowing you to use the business funding for immediate needs. With a merchant cash advance, you get cash upfront in exchange for a percentage of your business’ future credit/debit card sales. The major benefit of this loan type is that you’ll pay only when you make money instead of paying on a set schedule. The major downside of merchant cash advance is that it carry higher fees than other types of business loans.
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