To put it simply, a secured business loan is a product in which you put up collateral in exchange for a lump sum of money. If you make all of your payments on time, your collateral is safe. However, if you default on your loan payments, the lender may take legal action against you to obtain ownership of your collateral.
Types of Secured Business Loans
Although the term “secured business loan” covers a wide variety of products, there are several individual types for which you can apply. They include business equity loans, secured loans, loans, and even secured lines of credit. Each of these offers its own unique set of benefits, and business owners often turn to them when they have less-than-perfect credit since the collateral lessens the risk assumes.
Business Equity Loans and Lines of Credit
Loans and lines of credit based on your business equity have several benefits, but they are more likely to be profitable than a private credit score. However, these products are also quite risky since you lose your business – or a very large percentage of it – if you default on your payments. Most of the big banks that offer up business equity loans and lines of credit require up to 75% of your business as collateral.
Many of the banks across Canada will also provide loans. In this scenario, imagine that you own a new refrigerator, commercial oven, and walk-in cooler. You can go to the bank and ask for a loan, and the bank can provide you with the funds for the collateral. This means that you will be able to own the equipment, but you will not be able to afford it.
Secured Term Loans
Secured term loans are another option, and banks tend to be very flexible. For example, your bank might allow you to use the following:
Secured term loans with plenty of benefits, including longer repayment schedules with smaller payments, and easier qualification when compared to unsecured loans without collateral.
When to Consider Secured Business Loans
A secured business loan is certainly not the right choice for everyone, but it can come in handy in a variety of situations. For example, if your current retail location is a success and you want to open a second store, you can use your first lease as a loan. As long as you know the business’s ability to continue to generate revenue and keep it up to date, there is little risk involved.
Secured business loans are excellent options for business owners who have less-than-perfect credit or who want to avoid high fees and interest rates. However, it is important to take the time to analyze your business beforehand as soon as possible.