August 12, 2022

What is Secured Business Finance?

A loan which is backed by security, such as property or business assets.

How to Secure Financing for a Business

Business funding comes in all different shapes and sizes. Lenders can offer vast arrays of facilities from Business credit cards to overdraft facilities and more long-term product options. 

There may be several lenders who will consider facilities with physical security underlying their loan, this is secured business finance. The business might have to take a first or second charge or place a restriction on the title of a property. 

Understanding your options with a lender is crucial. Providing additional security which may lead to a property or asset being repossessed should not be taken lightly.

Additional Considerations

  • The type of charge the lender has will affect their rights over that property.
  • If they have been granted a first charge on a property and your business is unable to repay the loan or keep up with loan repayment terms, this could jeopardise the property and allow the lender the ability to repossess it.
  • Second charge lenders may not have the ability to repossess property, but this will depend on what is covered in the legal documentation and within documents such as the intercreditor deed or deed of subordination.
  • This will also be the case with a unilateral notice which may restrict your ability to sell or refinance the property in question in the future without the lenders consent. 

Covenants and Secure Business Loans

Consider any covenants that the lenders may have put in place within the facility agreement. Such as:

  • A minimum turnover or EBITDA requirement.
  • A minimum cash balance provision.
  • Other such measures requested by the lender.
  • A loan to value covenant. If the asset given for security reduces in value, this could break a lending covenant, and the loan will be called in unless the loan amount is reduced accordingly.

Why Would you Want a Secure Business Loan?

  • A lender might not be prepared to lend without physical security.
  • A lender might only be prepared to offer lesser amount without security, but a business has requested for a larger facility.
  • Some lenders may have a policy that they always have to have a physical asset to lend, in order to advance funds.
  • A business may find that the loan rate you’ve been offered will increase without security, as the lender will perceive additional risk.

What Counts as Security for a Secure Business Loan?

  • Vehicles
  • Hard assets
  • Machinery 
  • Charges over the debtor book 
  • Charges over inventory and company bank accounts.

Secure vs Unsecured Business Loans

To learn about how secure business loans compare with unsecured business loans, refer to our guide which breaks down the two finance options

If you are looking for Secure Business Finance, Provide can connect you with over 200 lenders to find ones that suit your loan criteria. Our team of financial experts will go over your options with you to get the best deal at the best rate. Making this process quick, easy, and transparent.

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