Secured Business Loans
If you are looking to develop an existing business or fund a new start-up then getting secured business loans is one way to raise finance for your commercial organisation.
Almost all the main banks will lend to you and certainly if you are a sole trader then they will use your house as security in case you can't repay the loan when it is due.
Secured business loans can be used for all types of asset purchase including premises, plant and machinery, technology improvements, working capital or purchase of materials as stock. There are also many specialist lenders other than the banks themselves that could provide instant cash for businesses but there may be additional fees involved and the interest rates could be higher.
What are Secured Loans ?
In all cases a loan can be secured or unsecured and this is the same for commercial business loans. If you have a limited company then the loan or mortgage will have a charge over an asset. For mortgages it will be a first charge so if the loan is defaulted in any way the finance company can sell the asset and recover their debt.
For unsecured loans these have no charge and because the risk is higher the interest rate will be higher. If you look in the market place secured loans are often at about half the interest rate of an unsecured loan.
Interest rates are also higher if you or your business has a bad credit rating but it's always worth checking out all the lenders to see what's available for your circumstances. Often businesses need short term loans to cover changes in working capital just for a few weeks or months.
Applying for Business Loans
As with a personal loan credit checks will be undertaken on the business for each application made so it's wise to find just a couple of lenders who have the types of products you require and not simply apply for many secured loans just because you can. It's probably best to approach your current bank in the first instance to see what they can offer your business in terms of interest rates and pay back periods.
As with most things loans can be negotiated especially if you have a good credit history and don't have a poor or bad credit rating. Both the actual interest rate and the amount required for your venture can be negotiated with your bank. Unless you have had loans before it's likely that you'll need to present an up to date business plan to your small business adviser at the bank to show just how you can repay the loan and that the risk to the lender is as low as possible.
All secured or unsecured business loans against limited companies are secured against the company rather than the person is the shareholder of the company or director (although there are of course certain director responsibilities to bear in mind).
Sole Trader Loans
If you do not run a limited company and are in a sole trader or partnership relationship then although the same rules apply to finding the right loans there is of course more personal risk associated with any finance you borrow. Normally if you are funding the purchase of a new asset then a charge is made on the asset itself but if you have a poor credit rating a charge may be asked to be made against your home. Just watch out for the terms and conditions applied when signing a contract.