Small businesses will often need some capital infusion to help finance their business expansion or to help keep the company afloat during an unexpected crisis or lean season. For many business owners, a small business loan is the best option to obtain funding for this.

Secured Commercial Loans

One thing to consider when you are considering taking on a business loan is whether you will be asked to provide collateral.

This is where secured commercial loans and unsecured commercial loans come in. It’s important to know the difference between these two types of loans because it can affect the course of your business.

What is a Secured Commercial Loan?

Secured loans are loans that require some type of collateral. This can be in the form of large commercial or personal assets. Collateral serves as security for the creditor in the event that the company becomes unable to pay for the loan. Due to the fact that you have something to lose, the loans are inherently riskier than those with no collateral.

If using the loan to purchase something for your business, the thing you are purchasing, such as your home or business-related equipment, can serve as collateral for a secured loan. Just like taking out a loan when buying a house, the bank will not release the deed to your house until the loan is repaid in full. If you are unable to make your payments, the bank has the right to keep possession of your property.

In many circumstances, this allows you to take out a substantially bigger loan amount. For example, even if you only qualify for a $10,000 loan from your bank, you could still be approved for a $200,000 mortgage (or more). You can also use other assets, such as personal property, stocks and bonds, as collateral to secure a loan.

Taking out a loan to buy business-related assets but failing to pay it back can result in the bank or financing firm seizing and selling these assets. This is one obvious difference between secured and unsecured loans: in the event of non-payment, the banks have the capacity to physically confiscate the collateral. It will then deduct that amount of your debt from the total and pursue legal action to recover the remaining amount.

Because there’s always the danger that a business would fail and be unable to make payments, any commercial lender taking on a loan always takes on a huge risk. The major difference between a secured and an unsecured loan is how a lender mitigates risk.

Some examples of secured loans

Two examples of secured loans are mortgage and vehicle loans. Secured loans, in essence, can be utilized for any large-scale acquisition when an asset serves as collateral.

A mortgage on a home is a common sample of a secured loan. Another type of secured lending is when a major purchase serves as collateral for the loan.

For example, if you were to buy a car, the vehicle would serve as collateral, resulting in a secured loan. The same may be said for any property with high monetary worth.

A valuable asset, such as a car, will serve as collateral for the loan, especially if the loan is used to purchase that asset.

Another example of a secured loan is a construction loan. This is a loan you take out in order to build on a parcel of land you own, and that loan is secured with that property. Other goods or financing can be used as collateral for secured loans, in addition to real estate and mortgages.

Other types of secured financing include company loans, which may contain office equipment or even machinery as collateral.

Secured lending can be used for debt consolidation loans, which combine various obligations into a single account. You’d have a valuable asset as collateral for the loan. We’ll discuss more on the types of secured loans, later on, to help you decide which one is applicable to your specific needs.

What is an Unsecured Commercial Loan?

You may not have any collateral to offer, or you may simply be searching for a low-risk collateral-free loan. An unsecured loan is one that is granted by a lender based solely on the borrower’s creditworthiness rather than any sort of security.

Unsecured loans are often supplied for credit card purchases, education loans, some home renovation loans, and personal loans, also known as signature loans, by banks and other above-board financial lenders. Unless you have a good credit history and a steady source of income, it’s usually difficult to get authorized for these loans. Obtaining unsecured loans for those with bad credit can be challenging, but it is not impossible. If you do decide to venture into the realm of collateral-free loans, be sure you know what you’re getting yourself into.

Because the lender is relying on your contract rather than collateral assets related to your firm, the loan conditions will reflect this risk. This will be in the form of a much higher rate of interest, and a shorter repayment period. Also, the lender may be less eager to offer a higher amount since there is no security that they can collect if you default on your payment. Your word is, in a way, your collateral; while it may be valuable, it is not something that the bank can take and sell.

Some examples of unsecured loans

Unsecured loans are divided into two categories, revolving loans and term loans.

Credit cards and personal lines of credit with a limit are examples of revolving loans. The borrower may spend and repay up to their credit limit as many times as they like.

Term loans are short-term loans that are taken out in one large payment and paid back in monthly installments. This is the typical structure for an unsecured small company loan, as well as consolidation loans to pay off existing debt.

You may be able to obtain a signature loan if you have a good relationship with a bank. This is another example of an unsecured loan with no collateral that is based on a lender’s evaluation of the borrower’s character and their capacity to repay the funds.

Blanket liens and personal guarantees

Since unsecured loans carry a higher risk for the lender, you may be asked to sign a personal guarantee before your loan is approved. This means that if your company failed to repay, you will be personally accountable to pay it back.

While a creditor cannot acquire your business property as a result of a personal guarantee, they may lawfully seize your personal assets, including bank accounts, automobiles, and real estate, until the debt is paid off.

Securing the option to file a blanket lien across your company assets is another frequent way to reduce lending risk. Most business loan conditions include a blanket lien clause that permits the lender to acquire and liquidate your firm assets in order to collect on the debt.

How secured commercial loans work

The amount of money you can loan with collateral is determined by the loan-to-value (LTV) ratio granted by your lender. For instance, if your asset is worth $200,000 and the lender accepts a 75% LTV ratio, you can borrow up to $150,000 from them.

Take note that if the value of your pledged assets decreases, you may be obliged to offer additional collateral to keep your secured loan in good standing. Furthermore, you are accountable to pay up the difference if your lender acquires your assets and they sell for less than the amount you owe.


Collateral is an asset that a lender accepts as security for the loan. Depending on the purpose of the loan, collateral may come in the form of real estate or other types of assets. The collateral aids in the equitable distribution of risk by ensuring that all parties concerned have a stake in the matter. It serves as a form of insurance for the lender. That is, if the borrower fails to make repayments, the lender can confiscate and sell the collateral to recover most or all of its losses. If you want to borrow funds, you will soon realize that most of the best funding options involve some sort of collateral.

Collateral-backed loans often have lower interest rates compared to unsecured loans. The lender’s legal right or claim to a borrower’s asset used as collateral is called a lien. The borrower then becomes compelled to repay the loan in a timely fashion unless they want to risk losing their home or other collateralized assets.

Types of Collateral

The loan type frequently dictates the nature of the collateral. When you apply for a mortgage, your house serves as collateral. If you get a car loan, the car serves as collateral for the loan. Fully paid cars, bank deposit accounts, and investments such as stocks, bonds, ETFs, and mutual funds are common types of collateral accepted by lenders. Retirement plans are seldom accepted as collateral.

You can also use future salaries as collateral for very short-term loans from sources other than payday lenders. Such loans are made available by traditional banks, usually for a period of no more than two weeks. Such short-term loans are a viable alternative in an emergency, but you should do your homework and meticulously read the terms and compare rates before availing them.

There are various different types of collateral that can be used to acquire a secured loan. In truth, any asset that a lender considers valuable can be used as collateral for a secured loan. However, the following are the most typical types of collateral:

  • Real Estate Property
  • Vehicles
  • Equipment and machinery
  • Accounts Receivables
  • Bank Accounts
  • Investments
  • Insurance Policies

While many business owners use existing business assets as collateral, your personal assets can also be used to receive a loan.

Pros and cons of secured commercial loans

Borrowing money is always risky, and you should avoid getting into a debt trap at all costs. Examine your business before considering a loan to ensure that you will be able to repay the loan or, at the very minimum, the interest on the loan amount.

On the other hand, secured loans have several numerous advantages over unsecured loans. The following are the advantages and disadvantages of secured commercial loans:


Lower Interest rates. Because they come with security, secured loans are less of a risk for the lender. You can browse around for the best rates if you have a consistent income, considerable assets, and a strong credit history.

Larger loan amounts. In general, a secured loan allows you to get a significantly larger loan amount because the lender takes on less risk. Larger the loan amounts will require collateral with more value, and is more likely to get approved.

Extended payment terms. Secured loans tend to have better repayment plans, allowing borrowers to spread out their payments over a longer period of time. Take home loans, for example. It usually takes a period of 30 years to repay them.

Easier to obtain even with poor credit. If you have a bad credit history, you may find it difficult to obtain an unsecured loan until you have spent months or years building a better credit score. Lenders are more eager to lend secured loans because they are backed with collateral.


Risk of asset loss. The major disadvantage of a secured loan is that if you default, the lender can confiscate an expensive and valuable business asset. If you’ve put a lot of money into that asset and accumulated equity, you could lose everything if the lender takes it back.

Damage to credit score. Any debt default can severely damage your credit score and restrict your future borrowing options in the future. Some lenders will help keep you from defaulting if you encounter a hard patch because it’s often easier to help during such a temporary lapse than it would be to retrieve and sell the assets.

So, is a secured commercial loan right for you?

You might not be able to get a secured business loan if your company doesn’t have significant assets.

But if you are confident that your assets are valuable enough to use as collateral, and you are confident that you are capable of paying off the loan, then a secured commercial loan is the best option for you to get reasonable loan terms without going through a complicated approval process.

Before you apply for a secured company loan, ask yourself the following questions:

  • Which assets are you most confident in leveraging?
  • What type of repayment terms are you considering?
  • How much money do you require?
  • What do you need the funds for?
  • Determining your eligibility

To qualify, an applicant should be a well-established company with measurable assets and a track record of trading. Lenders will not approve a loan unless these conditions are met.

Your financial statements should reflect these assets. These can range from accounts receivable to real estate. Although lenders prefer liquid collateral such as invoices and other marketable instruments, tangible assets which include real estate, machinery, and equipment can still be used to secure financing.

If you’re planning to use stock or inventory as collateral for a loan. Because most lenders would only accept such assets if the applicant can prove their value, you also need to establish that there is indeed a demand for the asset.

The provisions of an asset-based loan are heavily influenced by the market value and the type of assets offered by the company. Interest rates can differ depending on a company’s credit history, financial position, and trading length.

Types of Secured Loans

Secured loans can be used for multiple purposes. For instance, if you need money for personal reasons, secured loan options include:

  • Automobile loans
  • Home mortgages
  • Share-secured/ savings-secured loans
  • Secured credit cards
  • Car title loan
  • Pawnshop financing
  • Loans for life insurance
  • Loans for bad credit

Vehicle loans and mortgage loans, as previously stated, are secured by their respective assets. Share-secured and savings-secured loans operate in a slightly different manner. These loans are secured by funds saved in a credit union or bank’s savings or certificate of deposit (CD) account. If you can’t get endorsed for other kinds of loans or credit cards, this sort of secured loan can help you build credit.

Secured Credit Card/Line of Credit

The collateral you supply for a secured credit card or a line of credit may not be a physical asset. Instead, a cash deposit may be requested as collateral by the credit card company or lender. For example, a secured credit card may require a cash deposit of a few hundred dollars. Your credit limit is therefore doubled as a result of this cash deposit.

In some instances, a credit card provider may switch your account to an unsecured card after making a particular number of consecutive on-time monthly payments.

Business Loans

An equipment loan is also a secured business loan. Say for example you own a construction firm and require a new dump truck. You might pay for it with an equipment loan guaranteed by the dump truck you want to buy. You won’t have to worry about losing the equipment you bought if you pay your loan on time.

Car Title Loans

Car title loans and pawnshop loans are two other types of secured loans. Pawnshop loans can leverage everything from jewelry, luxury items, game consoles, and just about anything that you’re willing to pawn, as collateral. Car title loans allow you to borrow money using your car title as security. These are usually short-term loans which you can avail for small amounts of money. These loans normally carry higher interest rates compared to other types of secured loans. So if you fail to repay the loan, you could lose the assets pawned to them.

Life Insurance Loan

This loan allows you to borrow money against the cash value of a life insurance policy. You have the option of repaying the loan during your lifetime or having the loan amount taken from the death benefit which your beneficiaries will be paid after your death. Permanent life insurance policies are eligible for this form of a loan.

Bad Credit Loan

These are personal loans developed specifically for those with bad credit. Lenders can provide negative credit personal loans, but they may want some form of collateral, such as secured credit cards, or secured lines of credit. However, this type of loan comes with a higher interest rate and fees.

Where to Avail Secured Loans

Banks, credit unions, and online lenders all offer secured loans. There are a few factors to bear in mind while comparing secured loans. Take a look at the following, for example:

  • The type of collateral necessary to acquire the loan
  • The loan’s interest rate and annual percentage rate (APR)
  • Fixed or variable interest rates
  • Fees imposed by the lender: origination fees, prepayment penalties, etc.
  • Loan amounts – minimum and maximum allowed
  • Credit score, income requirements

Helpful Tips When Considering Secured Commercial Loans

Shop around for a variety of lenders so you can compare loan rates and terms. This will help you estimate how much a secured loan would cost. You can also use an online secured loan calculator to help you estimate your monthly installments and the total accumulated interest paid.

If you’re taking out a secured business loan, double-check the personal guarantee criteria. While this is a common practice for both secured and unsecured company loans, you don’t want to be caught off guard. Also, if considering a secured credit card, it’s a good idea to ask the credit card provider whether there’s any way to convert the account to an unsecured card and get your security deposit back along the way.

Now that you’re ready to get a secured commercial loan, you can follow these simple steps:

  • Examine your credit report. You can check your credit score using a free online service or your credit card provider before applying for any loan. Once you’ve gotten to know your score, you may utilize it to prequalify for a loan or make the necessary efforts to improve your score as well as your chances of getting approved.
  • Examine your budget. If you’re thinking about getting a secured loan, it’s also a good idea to look at your budget to see how much you can afford to pay on a monthly basis. When taking out a new loan, it’s always necessary to factor in current debt payments.
  • Assess the value of any prospective collateral. When you’re ready to apply for a loan, assess the worth of your prospective collateral, such as cash account balances, home equity, and any other valuable assets, to determine how much you can borrow.
  • Look around for the most affordable loan. After assessing your credit score and determining how much money you can afford to borrow, you can now begin your search for lenders. Contact your existing lender to learn more about your alternatives if you’re considering a HELOC or home equity loan. Look for lenders who offer prequalification without a hard credit check if you plan to apply for a secured personal loan.
  • Fill out and submit a formal application. Submit a formal application after you’ve prequalified with a lender. Unlike an unsecured loan application, secured loan lenders would almost always require an appraisal to establish the value of your collateral before providing the loan.

For small businesses that have a lot on their plate, this can sound like too much work. We understand that business owners are oftentimes shorthanded and need all the help they can get to make the right decision for their company. To help you with this procedure, you can contact Booster Financial to assist you every step of the way. We offer fast and straightforward services to make sure that everything goes smoothly for you. We can easily assess your needs and qualifications in order to get you the best possible loan suited to your needs.


What are the main advantages of secured loans?

You can borrow more money because lending institutions are confident that they will be repaid, either through loan repayments or the sale of the property. And since the lender is taking on less financial risk, secured commercial loans typically have lower interest rates than unsecured loans.

What are the main disadvantages of a secured loan?

The personal property pledged as collateral for the loan is at risk. If you have financial troubles and are unable to repay the debt, the lender has the right to confiscate your property. In most cases, the loan amount can only be used to buy a certain object, such as a house or a car.

How long can I pay a secured loan?

A secured loan typically has a repayment period of five to fifteen years. By extending the loan period, you may be able to repay a larger share secured loan more easily because your monthly payment will be reduced. Just bear in mind that the longer the loan term, the higher the interest you’ll pay during the loan’s duration.

Can I repay a secured loan early?

Yes, you can repay a secured loan early, but you may be charged early repayment fees. The early payback cost is equal to 1-2 months’ interest, so you may still save money on the total amount of interest owed.

What are the usual requirements for a secured loan?

The following are some of the usual requirements that financial institutions take into account when evaluating loan applications.

  • Business & personal credit history and credit score
  • Annual business revenue and profit
  • Length of business operation
  • Debt-to-income ratio
  • Debt-service coverage ratio
  • Collateral
  • Business plan

What happens if you can’t repay your secured commercial loan?

Falling back on a secured loan has the same credit implications as falling back on an unsecured loan: it can have a long-term negative impact on your credit history and credit score. And the bad news doesn’t stop there. You could also have your home or vehicle forfeited.

Is it possible to write off secured loans?

Lenders are not likely to write off a secured loan because it is attached to an asset and is typically for a large sum. If you’re having trouble making your payments, contact your lender; they may be able to assist you. Don’t just quit paying as it could jeopardize your property.

How is the interest rate determined?

Your interest rate may vary depending on your creditworthiness, overall business relationship with the financial institution, the loan amount, and the loan term.

Can I make an online application for a secured commercial loan?

Yes, we can assist you with your application online. Simply contact us through the options provided on our website.

How do I access the funds once the loan is approved?

If your financing request has been approved, a business lending specialist will inform you of the various options for accessing your funds after the loan papers are signed. These methods differ according to the type of loans obtained.

Is it better to choose a fixed or variable interest rate?

It all depends on your particular business situation and risk tolerance. Knowing the interest rate and payment amount will be for the duration of your loan payments will give you peace of mind, and help you to budget your expenses. On the other hand, a variable interest rate loan may allow for a lower interest rate and payment amount at first, but it is possible that the rate and payment amount may increase or decrease in the future. Generally, term loan products only have a fixed interest rate.

How can I make my monthly term loan payments smaller?

Prolonging the length of time you take to repay a term loan reduces your monthly payment. However, it will take you much longer to repay the debt, and the total cost of taking out a loan will be higher. The type of collateral you use to secure your loan may also affect your interest rate.

Understand Your Options

Find out more about the different finance opportunities available in your area and get funded today!

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