Secured Business Loans

What is a secured business loan?

Put simply, a secured loan is a business loan that is ‘secured’ against a physical asset, often referred to as ‘collateral’ or ‘security. Secured business loans are generally provided for a fixed period of time and the types of physical assets which are commonly used to secure the loans include residential and commercial property, cars and vehicles, machinery and other equipment.

Secured loans are generally lower risk because if you fail to repay the loan, then your lender can recover their losses by taking ownership of liquidizing or selling the secured asset. Because they are generally seen as lower risk, the terms of secured loans are usually more favourable such as lower interest rates.

How do I apply for one?

At iSelect we’ve partnered with Valiant to make it easy for our customers to easily compare a range of secured loan options. Click here to begin your secured loan application with the experienced team at Valiant.

Should I get a fixed or variable rate secured loan?

Well, it really depends on your business situation. They key benefit of a fixed rate secured loan is the security of knowing exactly how much you’ll need to repay for the duration of your loan term. This can provide valuable certainty for your business budget and also protect you from any unexpected interest rate increases.

On the other hand, a variable rate secured loan means any drops in interest rates will lower your repayments and free up more cash for your business. But equally you open yourself up to be negatively impacted by any increases interest rate, putting more pressure on your budget. Of course, interest rate changes are far from guaranteed so just like with home loans, whether you opt for a fixed or variable secured loans will really depend on your personal preference and risk appetite.

What can a secured loan be used for?

Generally (but not always), the asset you will use as collateral to secure the loan will be the same asset you are using the loan to finance or buy. The assets most commonly used to secure a business loan are commercial and residential property, including your business premises.

Other assets commonly used for secured loans include cars and vehicles, stock and inventory machinery and other equipment. Depending on your business type, these can range from coffee machines through to forklifts or even large-scale farming irrigation systems.

However it isn’t only physical assets that can be used to secure loans. Non-physical assets which can be used include your business savings or unpaid invoices.

What are the benefits of a secured loan?

Because they are inherently less risky for lenders, secured loans can offer more favourable terms for businesses. Here are some of the key benefits of secured business loans:

• Lower interest rates: Because the lender has the option to more easily recover the losses in the event of a default (by taking ownership or selling your secured asset), they generally offer lower interest rates than unsecured business loans.
• Bigger loan amounts: If you want a larger loan, then a secured loan is probably your best bet. Because they are generally lower risk, lenders tend to be willing to loan higher amounts.
• Longer loan terms: Compared to unsecured business loans, the length of a secured business loan is generally longer which means lower monthly repayments.
• Easier to get: Again, because they are seen as lower risk by lenders, it is often easier for businesses to apply for and be approved for a secured loan than an unsecured loan.

What are the disadvantages of a secured loan?

Using an asset to secure your loan means you run the risk of having it seized if you fail to make your repayments. Here are some of the main drawbacks of a secured business loan:

• You need an asset: Most obviously, you can’t get a secured loan without a valuable asset to use as security or collateral. If you don’t have a valuable asset to use, you’ll need to explore unsecured loan options.
• You risk losing your asset: Put simply, if you default on your loan (by failing to make your repayments) then your lender has the option of taking ownership of or repossessing your valuable asset. If this asset is essential to the success of your business, this could clearly have dire consequences for your ongoing viability.

What are some factors to consider when comparing unsecured loans?

Secured loans vary considerably between different lenders. Things to consider when comparing your options include:

• Interest rate: Interest rates can vary between lenders and this can make a big difference both on your monthly repayments but also the lifetime cost of your loan.
• Loan amount: The minimum and maximum loan amount can also vary between lenders and depending on your businesses financial position.
• Loan term: While secured loans are often longer, there is still a lot of difference in available loan terms. Make sure you choose a loan term that suits your business’ cash flow and isn’t going to cause unnecessary financial stress.
• Fixed or variable: While fixed interest rates provide valuable certainty, you won’t benefit in reduced repayments should interest rates fall. You’ll need to decide whether you’d prefer the security of a fixed loan or the flexibility of a variable loan.
• Fees and charges: Fees and charges, both for the initial set-up and ongoing maintenance of your loan, will vary between lenders.
• Redraw facility: Some secured loans can include with a redraw facility, allowing you to withdraw any money from any extra payments you’ve made on top of your minimum repayments. If you think you may be in a position to make extra payments, then this can be a valuable feature as it will lower your lifetime loan cost.
• Schedule of repayments: How much will your repayments be? Can you change the repayment schedule to suit your cash flow?

Need a secured loan fast?

Secured business loans do take a little longer to turnaround than unsecured loans, because of the time taken to assess the value of the asset you are using as collateral. That said, if the asset you are using isn’t already being used as security for another loan, secured loans can still be applied for and obtained relatively quickly as opposed to other types of business loans. Keep in mind the turnaround time can differ between lenders and loan products, so it’s a good idea to gauge which lenders typically process secured loans the fastest. The experienced team at Valiant can provide guidance in this area throughout your loan application process.

Looking for a secured loan? Compare from Valiant’s range of products and providers

At iSelect we’ve partnered with Valiant to make it easier for iSelect customers to find a secured loan product that suits their business needs. Valiant compare a range of products from over 80 lenders across Australia, and can manage the process of finding and applying for your finance solution, as well as settling funds. Get started comparing online today!

Last updated: 28/01/2020