It can be either. It’s for you to decide whether you want to use any of your assets as security against your borrowing.
If you want to borrow more than your assets are worth, or you’d prefer not to offer specific assets as security, you might choose an unsecured business loan. Once a lender agrees to the loan, you’ll get your cash fast and you’re unlikely to have to pay any upfront costs – but you’ll probably pay a higher interest rate and you’ll need to demonstrate a good track record.
A secured loan, on the other hand, will most likely be the cheaper option, though it’ll take longer to arrange (assets need to be valued).
Between the banks and the alternative finance market, there is a broad range of lenders, each offering a variety of lending products.
You can use almost anything as security to guarantee a business loan in the UK, as long as it has value.
Lenders prefer assets that can easily be resold, hold their value well, are important to your business and are more valuable than the amount you want to borrow. This should be no surprise since the point of a secured loan is that the lender can use the security to recoup losses if you default on the loan.
When lenders value a business’s security for a secured loan, they will look at how ‘encumbered’ the security is (i.e. https://www.paydayloansohio.net/cities/belpre/ do you own it 100% or are there other parties involved?).
- Commercial property (e.g. offices, warehouses, shops)
- Commercial vehicles (e.g. trucks, vans, cars)
- Heavy machinery (e.g. plant machinery, printing presses).
If you’re a small business or a start-up and you don’t have a solid trading history or a good credit rating, you might have more success with a secured loan
These are known as hard assets. Some lenders might also accept soft assets, for example, unsold stock in your warehouse.
Some lenders will consider a net value of multiple assets including, for example, your personal assets such as your residential property, car or shares.
Some lenders allow you to use cash as security. Be aware, however, that cash-secured business loans usually have different terms attached, compared with loans secured with property.
In addition to secured business loans, you might also want to consider invoice finance (borrowing using your unpaid invoices as security) or asset finance (borrowing against assets on your balance sheet).
Can I secure a business loan against property?
You can use almost anything as security to guarantee a business loan, as long as it has value. Commercial property is commonly used, and some lenders will accept personal residential property (or other personal assets) as security.
When lenders value a business’s security for a secured loan, they will look at how ‘encumbered’ the security is (i.e. do you own it 100% or are there other parties involved?). Lenders might in addition ask for a personal guarantee.
If you’re offering commercial property (or land) as security, and it has an existing mortgage, the lender may register a legal or equitable charge.
A legal charge is an actual legal interest in property (or land), rather like a right of way. It gives the lender the power of sale if you fail to keep up the loan repayments. However, the lender will require consent from your existing lender (for example, your mortgage provider) and this consent may not be forthcoming. It can take several weeks for the lender to register a legal charge – and this means you’ll have to wait for the funds.