Secured Business Loans
If you're 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're a sole trader then they will use your house as security in case you can't repay the loan when it's due.
Secured business loans fund all types of asset purchases including premises, plant and machinery, technology improvements, working capital or purchase of materials as stock. There are also many specialist lenders other than banks that could provide instant cash for businesses. However, there may be additional fees involved, and the interest rates could be higher.
What are Secured Loans?
In all cases, the 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 the asset. For mortgages, it will be a first charge so if the loan defaults in any way, the finance company can sell the asset and recover their debt.
Unsecured loans have no charge against them. Because the default risk is greater on these loans, the interest rates lender charge are more expensive. If you look in the marketplace, secured loans are often 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. Therefore, it's wise to find just a couple of lenders who have the types of products you require and not simply apply for multiple 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 payback 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. You can negotiate both the actual interest rate and the amount required for your venture with your bank. Unless you've 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. Your document will 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 with limited companies become secured against the company rather than an individual such as a shareholder or director. There are certain director responsibilities to bear in mind for limited companies.
Sole Trader Loans
Sole traders and partnership organisations follow the same funding rules although greater personal risk becomes associated with any finance you borrow.
Normally, if you're funding the purchase of a new asset, then a charge is made on the asset itself. However, 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.