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Starting “and running a business comes with inherent risks. Even successful companies can experience cash flow issues or other financial hurdles. Having access to capital when needed most can mean the difference between keeping your doors open or closing up shop. Secured business loans offer an adequate safety net that enables entrepreneurs to access funding while minimizing risk for lenders.
Secured business loans require borrowers to put up collateral to secure the debt. If the loan goes into default, the lender can seize the pledged asset and sell it to recover their investment. Collateral often includes real estate, equipment, accounts receivable, inventory, or other valuable property owned by the business.
Because secured financing carries less risk for lenders, borrowers often get better terms than unsecured alternatives.
Benefits of secured financing:
You are pledging an asset to back the loan, which results in interest rates that average around 6 per cent, significantly less than the double-digit rates familiar with unsecured options like credit cards or merchant cash advances. Each percentage point you save goes right to your bottom line.
Secured funding sources are often more flexible in how much they will lend, with some approving sums over $5 million. That kind of capital allows growing businesses to pursue bold expansion plans.
Rather than requiring repayment in a matter of months like other financing products, secured terms align with the useful lifespan of the asset. For example, equipment loans may offer five- to seven-year maturity dates. This enables borrowers to match payments to the pace of growth.
Several varieties of secured lending are available, with subtle differences in how they work:
Acquiring property like an office, retail space, or warehouse is a significant milestone for any enterprise. Commercial real estate loans cover this purchase; repayment comes from the property’s rental income stream. Typical terms last between five and 30 years.
Tools like machinery, vehicles, and computers have property value and usefulness, making them ideal collateral. Lenders issue funding based on a percentage of the equipment’s value, then structure instalments around its three- to 10-year usable lifespan. Ownership transfers once it’s fully paid off.
For companies that manufacture or resell goods, finished products and raw materials can support lines of credit or term loans. As inventory levels rise and fall, the credit line adjusts accordingly. Payments derive from ongoing sales revenue.
Outstanding invoices can also be collateral for business loans that inject capital based on unpaid sales. Once customers pay what they owe, funds go toward repaying the debt. This helps businesses smooth out cash flow interruptions.
In addition to having assets to leverage, secured business loans applicants typically need:
Most programs look for at least one year of established operations with steady revenue. Startups generally don’t qualify.
While requirements vary between lenders, a score of at least 650 proves responsible repayment habits. Significantly lower scores often lead to denial.
The pledged asset must hold sufficient value to cover losses if liquidated fully. The more collateral exceeds the borrowed sum, the better the chances for approval.
Ready to pursue secured funding for your enterprise? Connect with an experienced lender to evaluate options tailored to your assets, growth goals, and risk tolerance. An adequately structured product removes obstacles so you can focus on taking your company to the next level. With this safety net in place, I am confident in advancing ambitious plans for the future.
Taking the entrepreneurial leap to start or expand a business requires courage and planning. While passion and a great idea provide strong motivations, having access to capital gives entrepreneurs the resources to turn vision into reality. Secured small business loans open up growth funding that may not be accessible for those without extensive assets or operating history.
By pledging available collateral against financing, companies can secure their future success and limit risks that might derail progress. With the proper safety nets in place, determined business owners have the confidence to reach their biggest dreams. Demystifying options like commercial real estate loans, equipment financing, inventory loans, and receivables factoring removes obstacles so leaders can stay focused on strategic growth. Bolstered by patient capital and sound advice from lenders invested in their success, entrepreneurs have a trusted partner along each step of the journey.