The Benefits of Secured Business Loans

Secured business loans are business debts that are backed by collateral, which can be anything of value to the lender. This simply means that borrowers of secured business debts will have to surrender the loan collateral, such as their home, car, truck, farm equipment, jewelry or other personal and business assets, in case they are unable to pay their debts.

You can only apply for such loans if you are going to use the money for business-related endeavors, such as buying equipment and machineries, expanding your current operations, or increasing your capital for your business. The lender will ask you the purpose of your loan and will require documentation before you can obtain a business loan. You will also be required to provide a plan on how you will repay the debt. The amount of money you can get from such a loan and the repayment period are usually decided by the lender. The most common repayment periods are usually 5 to 30 years.

The following are some of the major benefits of secured business loans:

Faster Processing

Lenders process secured business loans faster than other types of loans.  Secured loans are particularly fast, since you have collateral to back your loan, lenders are more apt to approve your loan, after you have shown proof that you can repay your loan.

Lower Interest Rates

People who take out secured business loans are usually given lower interest rates.  Lenders know that borrowers are more motivated to pay the loan because of the collateral and default rates are lower than unsecured loans.  If your loan’s collateral is your house, for example, you will most likely do everything in your power to pay your loan because you do not want to lose your home.

More Flexible Repayment Options

It is usually easier to negotiate payment terms with the bank for secured business debts. For example, if you get an unsecured loan (which does not require collateral) your lender will only give you a few years  to pay the loan back. However, if you get a secured business loan, you can negotiate the terms of your debt. You may even get an additional year or two to settle the loan.

Potentially Bigger Loan Amount

Another benefit of a secured loan is that you can allocate a larger loan amount as compared to unsecured loans. Your secured loan amount is dependent on the value of your collateral.  For example, if your collateral is your three-bedroom apartment in Manhattan,  your loan amount will be higher from your lender.