Secured Business Loans: Ultimate Guide to Collateral (2019)

This page was updated in 2023 to include the most relevant information.

The growth and success of most businesses often require access to additional funds. If your small business is in need of extra money, secured loans can be the key to overcoming challenges or taking advantage of available opportunities.

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What are Secured Business Loans?

A secured loan is a type of financing that is backed by collateral. This collateral is leveraged by business owners in order to provide lenders with a sense of “security” in case of foreclosure.

This loan requires upfront collateral which reduces risk for the lender, often allowing them provide a lower interest rate that can be paid back more easily by the borrower.

Secured financing is typically offered by financial institutions to business owners who require capital to start a new business, expand an existing one or pay for business-related expenses.

However, there’s more to the story here — and it’s essential for borrowers to clearly understand the commitments they’re making or risks they face before entering into a secured loan agreement, not after.

To that end, here are 10 things borrowers need to know:

9 Things You Need to Know About Secured Business Funding

The fundamental purpose of securing a loan is to lower the lender’s risk — not the borrowers.
Collateral is not limited to business assets, but can also include personal assets (e.g. the borrower’s home, car, etc.). Some lenders insist on cash-secured loans, because they don’t want to liquidate the collateral.
Some lenders insist on blanket liens, which essentially means they can seize any asset(s) related to a borrower’s business to make up for any missed payments.
Banks and other lenders can — and often do — undervalue collateral, in order to further reduce their risk.
Borrowers — not lenders — must pay up front fees for collateral valuation (and borrowers have no appeal or recourse if they don’t agree with the valuation, which as noted above is often much lower than fair market rate).
Secured loans are often pegged to variable interest rates, which means that payments will rise if rates go up during the loan term.
Paying a loan back early will not result in any interest savings. On the contrary, it will trigger penalties.
Secured loans usually take several months to set up.
Successfully repaying a secured loan doesn’t boost a business credit score as much as successfully repaying an unsecured loan.

Benefits of Secured Business Loans

Unsecured business loans are financing options that do not require collateral. These can be great options for business owners who have limited assets, and want to protect their personal or business real estate. However, unsecured financing does not help build credit and establishing lasting relationships with lenders. A secured business loan is the best option to achieve these kinds of goals.

That’s why with a secured financing, you’ll find that traditional lenders feel safer, interest rates are generally lower, and terms are generally more agreeable to the borrower’s business needs.

Why Secure a Business Loan?

Utilizing a secured financing is a great way to ensure a lower interest rate, a longer repayment period, and the opportunity to build credit and forge a relationship between business and credit provider. National Business Capital strives to understand each business’ unique history, present position and future needs to provide the best financial assistance possible.

National’s 90% approval rates, zero upfront fees and years of experience providing honest, professional financing advice is on your side. Take advantage of expansion opportunities, amass seasonal inventory, and engage in lucrative marketing initiatives with small business loans.

3 Common Problems When Applying – And How to Solve Them

1. Not Having Enough Collateral.

Many borrowers simply don’t have enough collateral to obtain a secured loan. What’s more, some lenders — and especially banks — are notorious for under-valuing collateral, because it further reduces their risk exposure.

For example, a piece of high-end industrial equipment that 10 out of 10 marketplace experts would say is worth $60,000 might be valued by a lender at $40,000. If the unsecured loan requires $60,000 worth of collateral, the borrower will need to pledge another $20,000. Is this unfair? Yes. Does it happen all the time? Unfortunately, that’s another yes.

2. A Time-Consuming Process (If Using Traditional Lending Methods)

Many lenders who insist on collateral refuse to expedite the valuation process, frankly because it’s not in their interest to do so (again, banks spring to mind here).

Unfortunately, this means that the loan application process can take several months, which for many borrowers is simply not feasible. They need funds within days to cover unexpected expenses, or take advantage of limited-time opportunities.

Fortunately, National uses innovative alternative lending methods to secure financing for their clients in as little as 24 hours, without hassle.

3. High and Non-Refundable Up-Front Costs.

Many borrowers who pledge personal and/or business assets are unpleasantly surprised to discover that they — and not the lender — must pay for the collateral valuation.

This amount can be hundreds or thousands of dollars, must be paid up-front, and there’s no guarantee that the valuation will be sufficient to cover the loan. If not, then prospective borrowers do not get their up-front fees back.

Fortunately, companies like National offer secured business financing options with little to no upfront costs, regardless of credit score and financial history.

What Companies Utilize Secured Small Business Loans?

All types of small businesses could benefit greatly from this type of loan. However, companies that have mutual funds, vehicles, inventory, equipment, accounts receivable, land, buildings or other real estate to put up as collateral will have significantly lower payments, and significantly longer repayment periods. Compared to unsecured, collateral-free loans, secured funding typically comes with better terms.

What is an Unsecured Loan?

Unsecured business financing is isn’t secured by assets or collateral. Instead, borrowers provide a personal guarantee that they’ll pay back the loan regularly, in full and on time.

There are both term loans without collateral and business lines of credit. These are great options for business owners with limited assets, as well as those that simply that do not feel comfortable with leveraging their own personal or business property.

3 Key Differences Between Secured and Unsecured

Pledging Collateral: The biggest difference between unsecured and secured, is that the latter are backed (i.e. secured) by collateral, which can be physical assets such as buildings, equipment and vehicles, or financial instruments like securities, cash, and so on. In the event that a borrower breaches the terms and agreements from the loan the lender offers — which can include missing a payment — the lender can take possession of some or all of the collateral, and liquidate it to cover the debt. Of course, this doesn’t mean that borrowers don’t have to pay back unsecured loans; obviously they do! However, in the event of a missed payment or other material agreement breach, the lender must attempt to recover the debt through collections, which must follow procedures as prescribed by law (including registered letters notifying borrowers of impending action). What’s more, many borrowers do not have enough collateral to obtain a secured loan — especially since it is lenders who determine the value of pledged assets vs. borrowers. For example, industrial equipment that is easily worth $50,000 may only be valued by banks at $25,000.
Total Cost of Borrowing: Another difference is the total cost of borrowing. Since lenders who offer unsecured financing take on more risk, the total cost of borrowing is relatively higher vs. secured loans. However, the amount of this spread varies, and in some cases it is significantly less than some borrowers have been led to believe. This is because most banks and other lenders oblige borrowers to pay for collateral valuation, and there can be other fees as well.
Application Time: The third key difference is that, because they do not require collateral valuation, are much simpler to administer than secured loans. For example, an unsecured loan application can be approved in a day, and cash flow can be made available within a week. Alternatively, secured loan applications can take several weeks or even months to put together.

If You’re Set on Unsecured Financing, a Word of Advice:

If an unsecured business loan is what you’re after, then the Expert Advisors at National suggest NOT going to a traditional lender by any means. Conventional methods of getting unsecured financing involve skittish bankers that don’t like the idea of providing capital with no leveraged assets. They will give you terms that are unruly, unpredictable, and generally awful in terms of accommodating to the financial needs of your company.

Instead, choose an alternative lender like National that understands that “unsecured” doesn’t have to be a scary word. In fact, unsecured business loans and unsecured business lines of credit are oftentimes just as effective if not more so than secured loans. The freedom of not having to leverage collateral eliminates the risk of losing any assets, while also getting the cash flow you need to grow.

However, unsecured loans aren’t always the best way to go for everyone.

Where to Get Your Secured Business Loan

You can get one through traditional lenders, in which secured financing is extremely difficult to qualify for, and can take upwards of months to receive funding.

Or, you can get secured financing through an alternative business financing company like National, who streamlined and expedited the funding process to get you the secured funds you need, exactly when you need it.

Without any confusing jargon, National’s Expert Financing Advisors clearly explain how our different unsecured and secured business loans work, answer questions that are specific to your business and objectives, and empower you to make the smartest and safest choice for your business.

If that means you ultimately partner with us, we’d be honored to be a part of your success story. Or, if you decide to head in another direction, it will still be our pleasure to help you boost your business loan IQ, and make a decision that is in YOUR best interest — not your lender’s!

Is Unsecured or Secured Financing Right for You?

It’s beyond the scope of this (or any other) article to definitively advise you on whether an unsecured or secured financing is right for you.

However, many borrowers who wisely perform their due diligence opt for an unsecured loan because it’s more versatile and flexible than a secured loan, and the application process much simpler, easier and faster.

Different Types of Loans for Any Specific Need

Mo business should be penalized for being designed in a way that benefits from one type of loan over another.

We offer a vast variety of secured financing and credit lines with terms that always accommodate to the needs of our customers. Because every business deserves an equal chance at success, and an equal level of respect, am I right?

Bad Credit Options for Secured Business Loans

You don’t need stellar credit and a spotless financial history. National offers secured financing options for business owners of all credit profiles, including:

Qualifications for Bad Credit Secured Business Loans

Business owners with poor FICO scores will need to do at least $120,000 in annual gross sales, and to have been in business for at least 6+ months to get approved for bad credit secured funding through National.

How to Get a Secured Business Loan [5 Simple Steps]

Here are the 5 simple steps to take in order to get a secured business loan:

Fill Out a 60-Second Secured Loan Application Online, or Call (877) 482-3008 to Connect with a Financing Advisor
Work with your advisor to customize your application in order to obtain the best secured financing offers in the marketplace for your business.
Our advisors will then compare over 75+ specialized secured business lenders in the global marketplace to find the perfect few matches for your business.
Start receiving multiple offers for secured financing through National’s real-time marketplace. Consult with your advisor to determine the best financing offer with terms and requirements that perfectly fit your needs.
Receive financing as fast as 24 hours through National’s expedited funding process.

Be sure to ask yourself…

Consider what assets you feel comfortable leveraging. Would you rather leverage your personal assets, or your business’s?
Ask yourself whether you’d rather leverage someone else’s assets as collateral?
What kind of repayment terms are you after? Fixed? Flexible? Weekly? Monthly? Cyclical payments? No matter what you’re after, we have the perfect funding option for you.
What are you going to use your funds for? A short-term improvement or fix? Grasping a huge opportunity for success? Overcoming a business challenge? Need a little working capital?
How much do you need? It might sound like a simple/obvious question, but in reality it can be one of the most difficult to answer. Financing that offers too-little can leave you unable to fund your business goals. Too much can leave you repaying excess money that you don’t need for a long, long time. Take the time to think about this!

Now that you’ve got all your specifics ready to go, give our experts a call at (877) 482-3008 for advice on how to get started, or fill out our 1-page, 1 minute application to get the secured financing you need in as little as 24 hours, with NO FICO, annual revenue, or time in business required!

Secured Business Loans: National's Ultimate Guide to Loan Collateral (2023)