Find the best business loan rates (2021)

Secured Business Loans

By Elise Moores Managing Editor at Fast Capital 360 Reviewed By Mike Lucas

Building your business takes planning, thought and resources. It also takes capital. If you’re asking yourself, “How will I fund this growth?” The answer may be a secured business loan.

This financing is available to entrepreneurs operating organizations of all shapes and sizes.

So is a secured loan right for your small business?

We’ll explain what you need to know about secured small business loans — and how they can help your company. We’ll cover how secured business loans work, what you can use for collateral, how they differ from an unsecured loan, the different kinds available to small businesses and how to apply for this financing.


What Is a Secured Business Loan?

A secured business loan, also known as a collateralized loan, is a financing product that requires collateral to secure funding. Secured loans can be both short- and long-term financing.

A conventional business loan is commonly secured with collateral (or pledged assets).

  • How Do Secured Small Business Loans Work?

    Secured business loans are provided in a lump sum, with the principal of the funding repaid, with interest, in either monthly or weekly increments over an agreed term.

What Can Be Used as Collateral for a Business Loan?

There are a variety of items that can be used as collateral to secure your business loan. Lenders are most interested in assets that are completely liquid or easily can be liquidated in the event of a default.

Here are the most common forms of collateral you can use for a secured business loan:

Property

You can pledge a piece of property — such as a home or an automobile — to obtain financing. Obtaining business loans secured against property is something many entrepreneurs do to bolster operations. However, it’s important to remember not to overextend yourself, especially if the property you’re posting as collateral is your primary residence.

Savings

A portion of your savings can be used for a secured business loan. As with using property as collateral, you don’t want to leave yourself in a situation where you’re hindering your present or future financial safety to secure a loan. However, applicants with significant reserves can leverage their savings to bolster their businesses.

Equipment

Company equipment can be used as collateral for a secured loan for a small business. To obtain a business loan with that type of collateral, the equipment must be in good condition, operational and have a reasonably high market value to other businesses in your industry.

Self-Securing Loans

Another way financing can be secured is through the purchase of new equipment. With a self-securing loan, the lender purchases and owns the asset at the outset of the term and essentially leases it to your business. Note that the borrower owns the equipment once the secured small business loan has been satisfied.

Invoices

Billing your customers represents income for your business. Lenders see these unpaid invoices as an asset—depending on the amount owed, the indebted company’s reputation and the age of the invoices. This type of secured business loan also is known as accounts receivable (AR) financing or invoice financing.

Inventory

As with using invoices or equipment to secure working capital, your business can use inventory (current or prospective) as collateral. Using inventory to secure your loan can allow you to get an advance on any goods you have ready to be sold.

Do you need a loan for your small business?

Secured vs. Unsecured Business Loans

The key difference between secured and unsecured loans is that secured business loans require you to put up assets, while unsecured loans don’t. Keep in mind that most unsecured loans will require either a personal guarantee or a business lien to protect the lender from defaults.

Secured business loan rates are better than unsecured loan rates because the overall risk of the loan is lower.

One of the most important distinctions between secured and unsecured loans is if a borrower goes out of business and needs to liquidate assets to pay off debts, lenders with secured agreements are paid first. Depending on the circumstances, payment may take the form of repossession of property.

Is a Secured Small Business Loan Right for You?

If you have assets to pledge as collateral to secure business funding, and if you’re willing to post them, the answer is yes.

If the answer is no, an unsecured loan probably is a better fit for you. If you find yourself having difficulty deciding between a secured or an unsecured loan for your business, consider the following:

  • Do you own your business assets?
  • How much funding are you looking for?
  • What is your credit score?

These 3 factors will play a large role in helping you decide which loan type is right for you, as well as which loan type you have a better chance of qualifying for. (Note that a secured business loan with bad credit is possible if a business owner has the collateral to back the funding.)

Let’s break down each of these considerations:

Owning Your Assets

Without owning your assets, you won’t be able to provide them as collateral. Even if you’re 97% paid through your lease-to-own agreement for an asset, you won’t be eligible to pledge that specific item as collateral until you’re the legal owner.

Desired Funding Amount

While $10,000 is a significant amount of money in just about any situation, in the context of the financing, it isn’t very steep. However, for businesses looking to obtain more than $10,000, lenders typically will ask for some form of collateral to secure the funds. Although it isn’t uncommon for unsecured loans to exceed $10,000, the terms will be more attractive to both parties if collateral is involved.

Credit Score

Your credit score indicates to lenders how effective you are at managing your money and repaying debts. In terms of helping you secure a business loan, the higher your credit score, the lower your secured business loan collateral requirements and the better your terms are likely to be. Even if you have a bad credit score, valuable collateral can offset the risk.

How Much Can My Business Qualify For?

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Secured Business Loan Types

Deciding whether your business is better suited for a secured or unsecured business loan also depends on the type of loan you’re looking for.

Each lender will have their own set of standards and preferences.

Best Secured Business Loans:

Equipment Loans

Equipment loans are used to buy equipment that might otherwise be out of your price range. In the majority of cases, the equipment itself is used to secure the loan, meaning that if your business fails to make its payments, your lender has the right to reclaim the equipment to cover its costs.

Using the purchased equipment as collateral, your lender charges your business an interest rate as it pays back its loan. Qualifying for equipment financing, while dependent on the price of the equipment, is pretty straightforward.

Minimum qualifications required through Fast Capital 360:

  • 2 years or more in business
  • $160,000 or more in annual revenue
  • Credit score of 620 or higher

SBA Loans

The Small Business Administration (SBA) has a wide variety of loan options specializing in low rates for small business owners.

SBA loans are secured using a guarantee of up to 85% by the federal agency. This means the SBA will pay a percentage of the lender’s loss if your business becomes unable to make its payments, giving your business a chance at a loan with better rates. Because of this guarantee, SBA loans are often given lower interest rates and longer terms than many forms of small business financing.

Some lenders’ minimum qualifications are the following:

  • 2 years or more in business
  • $50,000 or more in annual revenue
  • Credit score of 650 or higher

Secured Business Lines of Credit

A business line of credit provides access to funds to spend as your company needs. This type of loan acts similarly to a credit card, allowing you to withdraw only what you need, up to the credit limit, paying interest only on the amount you’ve taken. You are never obligated to use the entire amount.

The benefits of a business line of credit make it a preferred funding option for many business owners, offering you the chance to use revolving funds on your own terms and improve your cash flow.

Minimum qualifications required by some lenders are:

  • At least 1 year in business
  • Annual revenue of at least $200,000
  • Credit score of 560 or better

Accounts Receivable Financing

If your business manages multiple accounts with payments due, this is the type of financing for you. Lenders provide your business with access to cash it’s owed so it can continue to function normally without any interruption due to late payments.

Accounts receivable (AR) financing is another type of secured business loan that is reliant on the amount owed to your business. If multiple past due accounts are stopping you from growing your business, AR financing can help your business keep moving forward as it waits for customers to pay off their balances owed.

Minimum qualifications required by some lenders are:

  • 1 year or more in business
  • $150,000 or higher in annual revenue
  • Credit score of 600 or better

Business Term Loans

With a business term loan, you receive a one-time infusion of capital and pay it back over the term of the financing. They’re used for long-term investments, including equipment purchases, refinancing debt and commercial real estate.

A typical term loan features payment periods ranging between 1 year and 5 or more years. Remittance installments are due monthly, with payments applied against the loan’s principal and interest.

Term loans offer businesses higher limits, longer repayment periods and lower interest rates. The trade-off for these favorable terms is stricter qualifying requirements.

Some lenders have the following minimum requirements for borrowers:

  • 1 year or more in business
  • Annual revenue of $200,000 or more
  • Credit score of 600 or better

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How to Apply for a Secured Business Loan Online

When applying for a secured business loan online, you’ll be asked to provide basic business information such as when your business was founded and what percentage of the business you own. Knowing what else a lender might ask you to provide can help speed up the process.

Additional documents lenders could request:

  • Recent bank statements
  • Voided business check
  • Tax returns
  • Proof of assets

If you’re seeking fast secured business loans, note that conventional lenders use applications that require more paperwork and may take some time to process. Applying through an online lender could be a better option for you if you need quick access to funding.

  • Calendar icon
    Business Term Loans
    Financing amount: Up to $250,000
    Repayment terms: 1 - 5 years
    Interest rate: Starting at 7%
    Speed of funding: 1 day
    Financing amount: Up to $250,000
    Repayment terms: 1 - 5 years
    Interest rate: Starting at 7%
    Speed of funding: 1 day
  • Bank icon
    Commercial Loans
    Financing amount: Up to $5 million
    Loan term: 3 months - 25 years
    Interest rate: Starting at 7%
    Speed of funding: Same day
    Financing amount: Up to $5 million
    Loan term: 3 months - 25 years
    Interest rate: Starting at 7%
    Speed of funding: Same day
  • Bag icon
    SBA Loans
    Financing amount: Up to $5 million
    Repayment terms: 5 - 25 years
    Interest rate: Starting at 6.25%
    Speed of funding: 7 days
    Financing amount: Up to $5 million
    Repayment terms: 5 - 25 years
    Interest rate: Starting at 6.25%
    Speed of funding: 7 days
  • Store icon
    Working Capital Loans
    Financing amount: Up to $500,000
    Repayment terms: 3 months - 5 years
    Interest rate: Starting at 7%
    Speed of funding: Same day
    Financing amount: Up to $500,000
    Repayment terms: 3 months - 5 years
    Interest rate: Starting at 7%
    Speed of funding: Same day
  • Short-Term Business Loans
    Financing amount: Up to $500,000
    Repayment terms: 3 - 18 months
    Interest rate: Starting at 10%
    Speed of funding: Same day
    Financing amount: Up to $500,000
    Repayment terms: 3 - 18 months
    Interest rate: Starting at 10%
    Speed of funding: Same day
  • Business Lines of Credit
    Financing amount: Up to $250,000
    Estimated repayment term: 6 months - 2 years
    Interest rate: Starting at 8%
    Speed of funding: 1 day
    Financing amount: Up to $250,000
    Estimated repayment term: 6 months - 2 years
    Interest rate: Starting at 8%
    Speed of funding: 1 day
  • Document icon
    Accounts Receivable Financing
    Advance amount: Up to 80% of receivable value
    Repayment terms: Until the customer pays the invoice
    Factor rate: Starting at 1.02
    Funding available: Same day
    Advance amount: Up to 80% of receivable value
    Repayment terms: Until the customer pays the invoice
    Factor rate: Starting at 1.02
    Funding available: Same day
  • Wrench icon
    Equipment Financing
    Financing amount: Up to 100% of equipment value
    Repayment terms: 1 year - 5 years
    Interest rate: Starting at 8%
    Speed of funding: 2 days
    Financing amount: Up to 100% of equipment value
    Repayment terms: 1 year - 5 years
    Interest rate: Starting at 8%
    Speed of funding: 2 days
  • Money icon
    Merchant Cash Advance
    Advance amount: Up to $500,000
    Estimated repayment term: 3 - 24 months
    Factor rate: Starting at 1.10
    Speed of funding: Same day
    Advance amount: Up to $500,000
    Estimated repayment term: 3 - 24 months
    Factor rate: Starting at 1.10
    Speed of funding: Same day

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