May 20, 2021
The Top Pros and Cons of a Secured Business Loan
In this blog post, we'll explain what a secured business loan is and how you can determine if its the right financing option for you.
What is a Secured Business Loan?
A secured small business loan is backed by an asset that you have, such as equipment, cars, or real estate. If the loan defaults and you’re unable to repay it, the business lender has the right to seize that item as a payment. This gives them a form of security, so that if you can't make your monthly payments they can seize the collateral instead. Since these business loans are less risky for the lender, the interest rate is usually lower and easier to obtain for the person that's borrowing money.What are the Benefits of Secured Business Loans?
1. Lower Interest Rates
Secured business loans typically have low interest rates than other business financing products, such as:- Unsecured business loans
- Credit cards
- Business lines of credit
2. Longer Repayment Terms
Secured loans can have longer repayment terms, sometimes if 10 to 30 years. Ultimately, your business loan lender will provide set terms based on your specific situation. If you’re unable to repay a loan in a shorter term, pursuing a secured loan might be beneficial.3. Easier to Obtain Financing if Experienced
If your business is established, it’s easier to obtain a secured loan because again, it’s less risky for the lender. In general, most banks and alternative lenders are less likely to work with startups because they haven’t been able to prove themselves yet.4. Higher Dollar Amounts
Usually, secured financing comes in larger amounts because of the risk mitigation for the lender. Since they're a less risky financing option, they’re able to provide a larger loan amount. If you’re in need a significant amount of money, you should start considering your collateral so that you can secure business financing. Although submitting collateral can be risky for business owners, it's also well-worth it if you need significant financing.