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Secured business loans require one or more assets to be put forward as collateral. This protects the lender from financial loss if a company cannot afford to keep up with the repayments at any stage.
It reduces their risk of lending when compared with unsecured loans. A business loan secured on property or another valuable asset can be easier to access for this reason, and typically offers a lower interest rate than an unsecured loans.
Lenders prefer assets of a high value that can be resold relatively quickly in the event of default. This allows them to recoup their money with few issues and as property is one of the highest value assets available, it’s commonly used to secure a business loan.
If you purchase business premises for your own use, an owner-occupier mortgage will be secured on the commercial property. Alternatively, you may decide to purchase a business property to rent out using a commercial investment property mortgage.
This type of secured business loan enables you to purchase property over time, which may be up to 25 years.
The lender will value any asset that’s put forward as security and establish whether you own it outright or if you part-own it with others. Some lenders accept personal property as security even though the loan is for a business.
It’s highly advisable to seek professional assistance before going ahead with a secured loan, however, particularly if you’re placing your home at risk. If the property already has a mortgage against it, the lender will register a legal charge. This provides official recognition that it’s been used as security and enables the lender to claim their legal interest.
Helps your business grow
A secured commercial loan that uses property as collateral can provide the means to develop your business as long as you keep up with the repayments over the full loan term.
Access to favourable loan terms
A business loan secured on a property can provide access to larger sums given the high asset value. Loan terms may also be longer, and the lower interest rates associated with secured loans can make monthly repayments more affordable.
Accessible if you’re a start-up or have bad credit
If your business has a bad credit rating you may still be able to access this type of lending as the loan is secured and presents a lower risk to the lender. Eligibility isn’t based on trading history either – rather the value of the asset – so start-ups may be able to access valuable funding in this way.
It’s also important to be aware of the potential risk of having your property repossessed, however, and UK Business Finance can ensure you understand all the potential issues. We’re experienced commercial finance brokers and offer free consultations, so please get in touch to find out more.
We work across a wide range of sectors throughout the UK, providing specialist advice to each sector.
What can company finance be used for?
Business finance can be used for a multitude of purposes within a company, from boosting general cash flow to funding development projects and buying stock. Its flexibility and adaptability to an individual business’s needs make it ideal whatever stage of business you’re at.
Management buy-in financing options
If you’re considering being part of a management buy-in (MBI) or you’ve decided to sell your own business to an incoming management team, there are several ways in which the transaction can be financed.
Can I get business finance if my company is insolvent?
If your company is insolvent, it’s vital to stop trading straight away and obtain assistance from a licensed insolvency practitioner. The insolvency practitioner’s role at this point is to assess your company’s financial situation so that they can provide guidance on whether additional finance is appropriate.
Can’t pay company bridging loan – what are my options?
A bridging loan is a form of short-term finance that lasts for up to 12 months. It provides vital funding between transactions when a company purchases one property before the sale of another has been completed.