The Pros and Cons of Secured Business Loans
When considering whether to take out secured or unsecured finance for your business, there are several factors to consider. Each business is different and the way they collect payment also differs greatly.
There is no one size fits all product for business borrowing, and no ‘best’ product. Each business must consider which option suits their needs.
We have broken down a number of the pros and cons of secured lending to make that process simple.
- Secured lending is usually cheaper, due to the reduced risk to the lender.
- Secured lenders will allow you to borrow the money over a longer term, reducing your monthly repayments.
- The addition of security usually allows you to borrow more money than would be available on an unsecured basis.
- Adverse credit can cause a major problem during unsecured business loan applications. Secured lenders tend to take a view on previous problems, as long as there is a good reason for them, meaning your application is far more likely to be accepted.
- As the security will need to be valued and a legal charge placed on the property, there will be fees to pay upfront. The valuation and legal fees must be paid during the application process, meaning you will have to spend money before you receive a penny. In addition, if the valuation is unfavourable, then the loan may even be declined, meaning the valuation fee is wasted.
- When borrowing over a longer term, the total interest charged will usually be higher. It’s important that you consider the total cost of the loan before moving forward.
- To secure a loan against something, you need the asset in the first place. If you don’t have suitable assets, you should consider another type of business funding.
- Due to the additional checks, including the valuation and legal process, applications take much longer to complete than unsecured borrowing. Applications can take several weeks, depending on the lender.
How To Get Started
Although each lender has their own methods of processing applications, there are common details that are needed by all lenders. We discuss your needs over the phone and will ask any relevant questions during the initial call. In general, we will ask you the following:-
- The security offered and the value of it (plus any outstanding loans already secured by it).
- The trading performance of your business (turnover and net profit especially).
- How much you’re looking to borrow and for how long.
- The reason for the loan.
- Details of your business and what it does.
- Details of the directors and major shareholders of the business.
- Information about the credit history of the business and its shareholders and directors.
Of course, depending on your individual circumstances, additional information may be required.
What Is the Application Process?
Once your application has been assessed and a suitable lender chosen, you will be told the details of the product on offer and given full details.
At this point, a formal application can be made, and supporting information must be sent to the lender to allow them to fully assess the proposal.
Once everything has been checked and approved, a valuation of the security will be required. Should everything go as expected here, a formal offer can then be issued.
At this point, the loan will be legally executed, and a charge registered against your security. The funds will then be paid into your account to use as planned.
Do You Work with Start-Up Businesses?
Yes, we can offer secured business loans for start-ups if clear affordability can be demonstrated. The key to this is to ensure that a robust business plan and formal projections are in place.
This allows the lender to fully understand the proposed business and make a solid assessment of your application.
Although producing these documents can seem like hard work, it will significantly increase the likelihood of your loan being agreed.
Will My Assets Be at Risk?
Yes. As you are securing the loan against your assets, you will lose them if you fail to make the repayments as agreed with the lender. Although this would most likely not happen immediately, failure to keep up repayments would ultimately result in repossession.
What If I Don’t Have Any Property or Assets?
If you’re looking for a business loan but don’t own any property or assets, you have 2 options.
Firstly, you may be able to secure your loan against a guarantor’s assets or property, if the owner of the asset is happy to help. Of course, their assets will then be at risk should you fail to keep up the repayments on the loan.
If this is not an option, you should look at other business finance options such as unsecured business loans, merchant cash advances or invoice finance.
Will I Qualify?
With sufficient security and the ability to support the proposed repayments, you have a very good chance of being approved. When compared to unsecured lending, the criteria are much more relaxed.
How To Get Started
To get a quote, enquire online or give us a call on 01922 620008. One of our business finance experts will talk through your situation and offer you written terms within two hours of your enquiry.