What Are the Pros and Cons of a Secured Business Loan?
When a company requires a funding boost, secured business loans can be an attractive option. These loans require some form of security, which can be business assets like property or equipment. Let us help you gain a better understanding of secured business loans and their advantages and drawbacks. That way, you can decide if they are the right fit for your company.
Key Takeaways of the Pros and Cons of a Secured Business Loan
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What Is a Secured Business Loan?
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A secured business loan is a financing option backed by tangible assets. However, if your company defaults on the loan, the lender can apply to court to sell property or repossess equipment used as security to recover their losses.
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The Top Benefits of a Secured Loan
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Some of the pros of getting a secured loan include potentially higher loan amounts, longer loan terms and lower interest rates compared to unsecured loans & other financing options.
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A Few Drawbacks of a Secured Business Loan
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While equipment finance over vehicles can be arranged quickly, secured loans often require a valuation and this can make the application to settlement process longer than an unsecured loan.
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How to Get a Secured Business Loan
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darkhorsefinancial.com.au assists businesses source secured loans for businesses and connects them with appropriate lenders, offering expert guidance throughout the loan application process.
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What Is a Secured Business Loan?
A secured loan is a type of loan with tangible assets, such as real estate, company equipment, or balance sheet assets like your accounts receivable guaranteeing the loan. The security lowers the lender’s risk, which means higher loan amounts can be accessed with lower interest rates and better loan terms than other unsecured financing options. However, if you default on a secured business loan, the lender can apply to court to take possession of the property used as security. If they become the “mortgagee in possession,” a lender gains the right to sell the property in question to recover debts. In the event of an equipment finance default, a lender can repossess the equipment and assets that were guaranteeing the loan.
Once approved for a secured business loan, you will receive a lump sum of money you can use for diverse purposes. Your business can utilise the funds from secured loans to purchase new equipment, invest in expansion efforts, fund research-and-development activities or consolidate other debts.
The Top Benefits of a Secured Loan
If you’re deciding between a secured business loan and other types of financing options, here are some of the pros of getting a secured loan you should know:
Larger Loan Amounts:
- Secured business loans enable borrowing of larger amounts due to the extra guarantee of the security. As a form of asset-based financing, the value of the asset or property pledged typically needs to match or exceed the desired loan amount, providing a safety net for the lender in case of default.
Lower Interest Rate:
- Secured loans often come with lower interest rates compared to unsecured loans. Again, that’s because of the presence of security. So, if you plan to consolidate multiple debts or fund building a new facility in another location, secured loans can be the most cost-effective option for your company..
A Few Drawbacks of a Secured Business Loan
While secured business loans can be a valuable financial tool for businesses, they come with certain drawbacks that need careful consideration:
Risk to Property:
- Utilising personal or commercial property as security comes with risks. In case of financial difficulties leading to default, the lender can apply to court to sell the property to recover any outstanding loan amount and default fees.
Restrictions on Asset Usage:
- Using an asset as security can limit what you can do with that asset until the business loan is fully repaid. This will generally affect your ability to leverage the asset for other financial opportunities.
How to Get a Secured Business Loan
Ready to explore getting a secured loan for your business? darkhorsefinancial.com.au is here to help you decide whether a secured business loan is right for your company.
Get in touch with us today. Let’s start discussing your secured loan application.
