Secured Business Loan – Providing A Conducive Atmosphere For Business Growth

By: Andrew Baker

The amounts that a business will need as a business loan will generally be large. Unless, it is a bank that has utmost confidence on the borrowing enterprise, most banks and financial institutions will balk at the idea of lending a large sum to enterprises without any guarantee. This explains the genesis of secured business loans. A secured business loan is one where the borrowing enterprise pledges loan repayment by offering loan provider a lien of certain asset/ assets.

Borrowers do get business loans without having to pledge any such lien to the loan provider. These are known as unsecured business loan. However, such opportunities are not easily available. And if they are, the terms on which they come are very expensive. The APR that borrowers of the latter category will have to shell is many percentage points more than the secured business loan borrowers.

Would you, as a borrower of business loan, unnecessarily increase the cost of finance to your business, knowing well that the assets are being pledged and not sold out? The assets pledged in secured business loans are available for use by the borrower. It is only when the loan is not paid in full that the loan provider undertakes to repossess the asset forming collateral. Is it that the creditors of unsecured loan do not demand repayment if the borrower doesn’t pay. In this case, the loan provider has to demand repayment. Since they do not have a direct stake on any asset of the borrowing enterprise, they will seek support from the courts in the recovery process. Often the borrower has to cough up the amount. Additionally, the borrower’s credit history is tarnished because of these proceedings.

Secured business loans, thus is the safest bet for both the borrowing entrepreneur and the loan providers. Loans in this category will depend more on the value of collateral and the lending organisation chosen. Maximum amount can be had through a secured business loan.

Since the secured business loan has been used specially for use in business, one is able to better mould the business loan. One can use the business loan in a variety of purposes. Ranging from the daily requirements in the form of working capital, the business loan can also be used for expansion purposes.

Certain loan providers would insist on the borrowing organisation to fulfil certain preconditions in order to approve the loan application. Certain preconditions form standing orders that are applicable for the entire term of the secured business loans. For instance, loan provider will stipulate that the debt- equity ratio (the ratio of debt to equity in the capital) be kept to a particular level. Such preconditions amount to reduction in entrepreneur’s control over his business. Lender may demand immediate settlement of the secured business loan if at anytime the condition is not met. The borrowing enterprise must discuss well with experts about the implications of such clauses, before consenting to loan deals.

As against individuals who would have to repay the loan through fixed monthly or quarterly instalment, entrepreneurs get to repay the loan through repayments that are flexible. Entrepreneurs, owing to their fluctuating income structure, get to pay through instalments that are not fixed. In periods when the business is going strong, the entrepreneur will pay a major part of the loan. This will be used as a pretext to smaller payments or payment holidays, as the case may be.

Online processing of loans has caught up with secured business loans as it has with the personal loans. An entrepreneur planning to draw a secured business loan shall simply fill up the loan details and initiate the process of approval. The web technology is used by a few borrowers to compare between a number of loan deals available. The loan providers short-listed are requested to send a loan quote defining the terms of the secured business loan. This is a very important and effective technique of drawing information about the pros and cons of loans.

Proper planning must precede any decision to draw a secured business loan. The business not only has an asset on stake, it is also the reputation of the enterprise that is tarnished when the business does not pay in full. Since a business is always in need of finance, it cannot afford to lose on reputation. This will make things difficult when the enterprise is again in need of loans. They will have to do with business loans on stricter terms because of the bad credit history. Businesses must thus decide the use or need of secured business loan beforehand.