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    The Facts You Need to Know about Secured Loans

    The idea of taking out a secured loan for your business makes a lot of sense in certain situations. If you need to borrow money at a good rate and with a minimum amount of fuss, then arranging secured loans online is often the best way to do it. 

    Yet, too many people get started on the secured business loan process without fully understanding what it is first of all. You should ensure that you determine whether this suits you perfectly before going ahead. Bearing this in mind, let’s take a look at the main facts behind small business loans that you need to know.

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    What is a Secured Small Business Loan?

    In basic terms, there are two ways of obtaining a loan for your business.

    • An unsecured loan is a type of business loan without collateral being used.
    • A secured loan uses an asset of the business, or a personal asset, as collateral.

    Lenders are generally more comfortable about providing secured loans, as they know that they are protected in the case of the borrower failing to pay it back. This is because they can claim the property or other assets in the cause of a default. In a small business loan without collateral, the borrower doesn’t have this guarantee. This helps to explain why secured loans are usually easier to arrange and tend to offer a lower interest rate than an unsecured equivalent. The lender is taking less of a chance on whether or not the money will be repaid when it is due.

    Why Secure a Business Loan in the First Place?

    Borrowing money is something that businesses may do for a number of sensible reasons.

    • To finance an expansion into new areas or new services.
    • To make it through a slow period where incoming funds are low.
    • As a way of purchasing more stock or equipment.
    • To deal with an emergency, such as unexpected bills.
    • To provide the funds to buy another company.
    • As a method of financing the recruitment of new talent.

    Getting hold of a secured loan is something that the majority of businesses will do at one time or another. According to a Federal Reserve report, 40% of US firms applied for financing of some sort in 2017. The average loan amount was over $660,000. Obtaining a secured line of credit allows a business to plan ahead with more confidence. This can be especially important in a seasonal industry where demand fluctuates throughout the year but the cost base remains fairly steady at all times. With the help of a cash secured loan, it is possible to deal with anything unexpected that comes your way, as well as the everyday challenges that you need to plan for.

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    Types of Secured Business Loans

    When you look for a secured business loan, there are a few different types that you need to know about.

    Traditional term loans

    This is the type of loan that most people are familiar with. It runs for a fixed period of time that you use to pay it back, often in monthly installments.

    SBA loans

    The U.S. Small Business Administration helps companies to get hold of secured loans more easily, while reducing the risk involved for lenders at the same time.

    Business lines of credit

    This is a revolving type of credit that gives you the flexibility to borrow up to a pre-agreed limit. You only pay interest on the amount that you have borrowed at any given time.

    Securing a Small Business Loan with Collateral

    If the time is right to borrow some money for your business then you might wonder how to go about it. The first is to consider the different types of collateral loans that are mentioned above. Is there one that is perfect for your needs just now? If you have something that you can use as collateral for business loan purposes then you will have a variety of options to choose from. Therefore, it is all about making a smart decision. You can look for collateral loans online to see the widest selection of offers in very little time. This lets you do research on small business loans easily and narrow down your options before choosing the one that you prefer.

    What Kind of Collateral Can You Use to Secure a Loan?

    Before going ahead and arranging your secured loans, you need to consider what assets you are going to use as security. Typically, it is possible to arrange collateral loans using the following items.

    Property

    One of the simplest and most common approaches is to use property as collateral. You need to remember that this property is at risk if you fail to keep up your repayments, though.

    Savings

    You could also use cash savings to get a secured loan. This means setting aside enough money to cover the loan amount. You won’t be able to access your full savings until the loan is paid off, although you may be able to withdraw some in line with the reductions in the amount that you owe.

    Invoices

    Invoice financing is a type of secured borrowing that lets you take out a loan on the strength of invoices that you have issued but that haven’t yet been paid.

    Inventory

    Another option is to look at inventory financing. With this type of loan, you use the inventory that you hold as the collateral.

    Blanket liens

    With secured loans of this type, you give the lender the right to take any of your assets if you fail to pay back the amount that you borrow.

    Securing a Business Loan with a Personal Guarantee

    What if you don’t have any business assets that you can use as collateral, but need to get some extra funding? In this case, you can use a personal guarantee that confirms that you will take personal responsibility for the loan.

    What’s a personal guarantee?

    This is a written guarantee that you provide to the lender. You are confirming in it that failure to repay the business loan means that the responsibility is passed on to you personally.

    Collateral vs personal guarantees

    Naturally, putting your own assets on the line isn’t something that should be done lightly. In the case of new business loans for start-ups, this might be the simplest approach. However, if the business has assets it may be better to use them.

    Limited vs unlimited personal guarantee

    As the name suggests, an unlimited guarantee means that you are responsible for 100% of the loan amount. If it is limited then a maximum figure is put on your personal responsibility.

    Best Recommended Options for a Secured Business Loan

    What are the best small business loans for your needs? The following are some of the options for secured loans that you might like to consider.

    Short term loans

    You may only need a short term loan to get you through a specific period of time. This will typically run for a year or less, meaning that the amount of interest payable is fairly limited.

    Equipment loans

    Using your equipment as collateral can be a sensible way to grow a business. If you need to buy new pieces of equipment or replace older pieces then the items themselves can act as the lender’s security.

    Inventory financing

    This is one of the most appropriate small business loans for companies that need to wait for their invoices to be settled. It lets them meet their outgoings even if their customers don’t pay them immediately.

    Secured Business Loan with Bad Credit

    What if you have a poor credit history? Secured loans for bad credit cases are more difficult to find, but it isn’t impossible to arrange something suitable. By looking for a collateral loan, bad credit is easier for potential lenders to accept. Close to a third of Americans have a poor credit score of under 601. Yet, this doesn’t mean that you should pay a lot more for your business loans if you are in the same situation. By looking at online secured loans for bad credit, you can quickly find out the options that are available. The best bad credit business loans will let you achieve your goals, regardless of any previous credit issues.

    My Conclusion

    There are numerous reasons for looking at secured loans for a business. Thankfully, there are also different ways of doing this that should suit most companies. Whether you want invoice financing, a secured line of credit, a poor credit loan or something else, it is always a good idea to start off by thinking about your needs and your assets.