Secured Loans for Businesses: What Entrepreneurs Need to Know

by Kieran Daly
February 7, 2023
Secured Loans for Businesses: What Entrepreneurs Need to Know

Despite the number of financing options available to choose from, many entrepreneurs still apply for traditional secured business loans. But are they right for your company?

Below, find out what secured loans for businesses are, how they work, how long it takes to get one, and their pros and cons.

What Is a Secured Business Loan?

Secured loans for businesses are commercial loans that are backed by collateral. Collateral can be personal assets like real estate or business assets like your accounts receivables.

There is, however, a big risk for borrowers who take out secured business loans. If you default on your loan, your lender takes ownership of the collateral and then sells it to recoup any outstanding balance left on your loan.

Equipment Financing

Equipment loans are a slightly different type of loan in that they use the machinery, vehicles, and other assets you don’t yet own but want to purchase as collateral. And, just like with secured business loans, lenders will repossess and then sell the equipment if you can’t keep up with the repayments.

What Type of Collateral Can I Offer?

Forms of collateral most lenders will accept include:

  • Property: Commercial real estate and land, your primary residential property (where you live), and any rental property

  • Accounts receivables: Money owed to you by customers on unpaid invoices

  • Equipment: Machinery, vehicles, or assets used by your business

  • Inventory: The stock of products and materials you hold at its current market value

  • Savings: Surplus cash you have in your personal and business savings accounts that you don’t need for working capital  

Your lender may require a blanket lien if you want to borrow a large amount of money or they are concerned about your creditworthiness. A blanket lien allows your lender to use all of your business’s assets as collateral.

In many cases, lenders also want a personal guarantee. This means that if you default, they can pursue you personally for repayment of any remaining balance on the loan. They do this in case the amount your lender gets from selling your collateral isn’t enough to settle the loan balance in full.

What Are the Advantages of Secured Loans for Businesses?

Lender risk is much lower on secured business loans because they have the safety net of the collateral. As a result, they’re more likely to approve your loan application.

Other advantages of secured loans for businesses include:

  • You can borrow more, often up to 90% of the value of your collateral.

  • You pay lower interest rates, meaning you pay less over the loan term, especially if you have a good credit history.

  • You can borrow over a much longer term, meaning your monthly repayments are lower.

  • On fixed rate deals, your payments remain the same throughout the loan term, making cash flow management easier.

  • You can have a bad credit history and still be approved for funding.

  • You have a much greater chance of being approved for a loan if you’re running a startup or a relatively new business.

What Are the Disadvantages of Secured Business Loans?

The main disadvantages of secured loans for businesses are:

  • They’re no use to you if you have little or no collateral to offer lenders.

  • If you need the assets you offer as collateral to run your business and then default on your loan, your lender will sell those assets. This means that you might have to close down for good.

  • You have to pay thousands of dollars in origination fees, valuation fees, and broker charges. Even after spending all that time and money, a lender may still turn you down.

  • You have to wait weeks for your money because lawyers and other professionals need to get involved. If you need money in a hurry, this isn’t for you.

  • Your monthly repayments will go up if you take out a variable rate loan and the Federal Reserve increases its federal funds rate.

How Much Can You Borrow With a Secured Business Loan?

The maximum loan amount you can borrow with a secured business loan depends on:

  • The financial performance of your company

  • The value and type of assets you offer as collateral

Business Performance

Lenders want to make sure you can afford the repayments before they approve your application. So they’ll want to see your business bank account statements, management accounts, and your last 2-3 years of business and personal tax returns.

They’ll also base their decision on how long you’ve been in business, your annual revenue, the type of company you run, and how well you’re handling any other lines of credit you have.


Secured business loan providers use a metric called “loan to value” (LTV) when assessing a borrower’s application, just like mortgage providers do.

For example, if a mortgage provider offers you a mortgage with an 80% LTV on a property worth $250,000, they want you to put up $50,000 (20%) of your own money as a deposit.

The LTV on secured business loans depends on the assets you offer as collateral.

Lenders in this sector consider real estate to be a top quality asset. As a result, they may offer you an LTV of up to 90%. This means, on a $250,000 property, they’d lend you up to 90% of its value ($225,000).

They also like accounts receivables, and they may offer you up to 80% LTV. They’re less keen on inventory though, where a maximum 50% LTV is common.

Bear in mind that lenders don’t take your word for what your assets are worth. They’ll send out a surveyor to inspect your assets and then use their assessment of the value of your assets when deciding how much to lend you.

Where Can You Get a Secured Small Business Loan?

You can start the application process for a secured business term loan through:

  • Online lenders: They often give you an immediate decision-in-principle, but you’ll still have to wait weeks for your cash advance. That’s because they need to get lawyers and valuers involved before coming to a final decision.  

  • Small Business Administration (SBA) lenders: SBA loans tend to be restricted to businesses that have high credit scores and have been in business for a number of years.

  • Banks: Most banks require at least two years in business and high FICO Scores.

  • Credit unions:Credit unions tend to offer lower interest rates than banks, but you need to join one before you apply. Their product range is normally narrower too, meaning they might not be able to offer you the loan you want.

Apply for Unsecured Short-Term Business Financing With Backd

Even the best secured business loans require you to put your assets at risk because lenders will require collateral. But if you don’t have collateral or don’t want to risk what you have, there are alternative funding options.

Backd offers working capital financing from $25,000 to $2 million, with term lengths up to 16 months and flexible repayment terms. Backd also has a business line of credit option that provides quick access to revolving credit that can be used for any business need.

Our eligibility requirements are just that you have:

  • Been in business for at least one year

  • A FICO Score of 625 or higher

  • An annual revenue of at least $600,000

  • A U.S.-based business with a brick-and-mortar address

  • A business bank account

Start an application today and get the short-term financing you need fast!

What would you do with the right amount of capital?

Working Capital Advance

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  • Flexible - no collateral required
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Business Line of Credit

Get instant access to revolving credit with unlimited terms, and the best rates for your business.

  • Draw funds anytime
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  • Soft credit pull that doesn't affect your credit score