Secured business loans aren’t very exciting, but for a lot of new businesses, they make the difference between an idea that sits around and a business that actually gets off the ground. If you’re having trouble deciding how to pay for anything and are wondering if putting up security is a good idea or a problem waiting to happen, here’s the straight-up, practical breakdown.
What a secured business loan actually is
It’s easy to understand a secured loan: you borrow money and put up an asset as collateral. If you don’t pay back the loan, the lender can confiscate that asset. It might be your home, property, equipment, automobiles, or even your personal belongings in some situations.
It’s not tricky or hard; it’s just sharing risk. And since the lender’s risk is reduced, you usually get lower interest rates, bigger borrowing limits, and longer repayment terms.
Why startups use secured loans
Most new enterprises don’t have a history of trading, a steady stream of cash, or good credit scores. That makes it hard to receive unsecured loans, and they are generally pricey.
Secured loans bridge that gap because lenders are more interested in the asset’s value than the age of your business. You can frequently borrow sooner, more, and for less money if you can supply solid collateral.
Types of assets you can use as security
Depending on the lender, the following are commonly accepted:
- Property – residential or commercial
- Vehicles
- Machinery and equipment
- Stock/inventory (less common but possible)
- Personal assets (only if you’re comfortable with the risk)
Lenders will always appraise the asset themselves, so don’t be surprised if their value is much lower than yours.
How much you can borrow
There isn’t a set amount, although most secured loans are between £10,000 and £500,000. Property-backed loans can be significantly higher.
The lender will probably give you a proportion of the value of your asset (Loan-to-Value or LTV). For instance:
- Property: often 60–75% LTV
- Vehicles/equipment: usually lower, as they depreciate
If your firm is brand new, lenders may make these numbers a little stricter, but the asset is still the most important thing.
The benefits
- Lower interest rates: You often pay less to borrow because you give the lender something to hold on to if things go wrong.
- More likely to get approved: On paper, startups often don’t appear very good. Security makes the playing field even.
- More money borrowed: If your firm needs a lot of money, not simply a laptop and a desk, secured loan is sometimes the only way to get it.
- Longer durations for paying back: This can help with cash flow, which is quite important in the first few months when things are uncertain.
Who should consider a secured startup loan?
It’s a sensible route if:
- You need meaningful capital rather than a small top-up
- You’re confident in your business model and cash flow projections
- You understand (and accept) the risk of putting an asset on the line
- You want lower monthly costs than unsecured lending offers
If you’re in a volatile market, have unpredictable income, or you’re not ready to risk personal assets, secured borrowing is probably not for you.
How to make your chances of getting approved better
- Startups don’t receive a lot of breaks, so give yourself the best chance:
- Have a clear business plan with numbers that make sense
- Make a cash flow plan that can be checked out
- Make sure the ownership paperwork for the asset is clear and easy to read
- Don’t lie, lenders can see right through it
- Keep your credit file clean; it still matters, even with security
Secured business loans are not a miracle cure, and they are not a trap. They’re a tool. If you use them correctly, they can help your startup develop faster without costing you a lot of money in interest. If you don’t use them right, they could cost you your most important possession.
A secured loan can be a great approach to get your startup off the ground if you believe in your business, know your figures, and understand the risks.