What assets can I use to get a secured business loan?

What is a secured business loan?

Secured business finance is a form of borrowing that is secured by assets. This means that the asset is your security, and if the borrower does not pay back the loan, the lender can take the assets as compensation. The loan is secured by the equity in a person's home, commercial property, machinery, vehicle etc. The borrower then uses their asset as collateral to get a business loan or personal loan approved.  

*Secured finance can otherwise be referred to as asset-based lending.  

What collateral can a business use to get a secured loan?  

This varies from lender to lender, but generally, through FundingHub these are the most common asset types that get approval for secured finance.  

• Property e.g. home, commercial property or farm  ‍
• Equipment – machinery, tractor, computer equipment  ‍
• High-value movable assets – e.g. boat or a helicopter  

Essentially lenders are looking for assets that are high-value, non-depreciating assets that the borrower owns and can put up as collateral.  

Does the asset need to be unbonded?  

Yes, because the asset is what provides security and allowed you to take out the loan in the first place. With any secured loan the asset needs to be paid in full. Essentially you can’t have a mortgage on the property or helicopter and take out a loan.   

Is a business loan against an asset a good idea?

With any loan comes risk, and although a secured loan carries great risk because it’s backed against your asset, it still holds great benefit. It’s one of the most secured loans you can get, and because of that, it holds a much lower interest rate compared to other business loan types.  Another added perk is that you can access the value of the helicopter or property while you continue to use the asset during the term of the loan. So, for example if you are running a business and you’ve used machinery as collateral you can still use the machinery to continue operations.  

How does a secured loan work?

The application process is pretty simple, and FundingHub can help you compare secured business loan offers in under 5 minutes. There are a couple of requirements for an asset backed loan that differ from other types of business loans.  

If you meet the following criteria, you’ll be considered for a secured loan:  

• Six months trading history  

• An average of R40k+ revenue per month  

• A high-value/non-depreciating asset (it will need to be paid for in full)

What is the repayment structure for a secured business loan?  

Your repayment structure differs from lender to lender, however here are a few examples of the structure when it comes to asset-backed loan:  

1. As a term loan, where the borrowed amount is then repaid in equal instalments over a fixed period. Typically, offered as a short-term loan.  

2. As a revolving loan facility where an overdraft facility is provided, and you service the interest portion of monies borrowed every month.  

3. No monthly repayments are required because interest and capital are repaid together at the end of the term. This structure is very attractive if you are working on a deal which only receives payment on conclusion. 

Do I need a good credit score for a secured business loan?

A good credit score is not always necessary for a secured business loan. Whether you qualify for a secured loan or not depends on the total loan value and the value of the asset. With a secured loan against an asset, if you have a bad credit score you could still qualify for a business loan if your income exceeds the amount you want to borrow and have a fully paid asset to put up as collateral. So generally speaking, you don’t need a good credit score for asset based lending.  

Is it easy to get secured finance for your business?

A secured loan is backed by an asset, which means for a lender you are considered a less risky borrower. For most borrowers, your loan application is much easier, because there is less risk for the lender and they can draw value from your asset e.g. property. There is also less focus on your credit score or credit history. 

What can I use as proof of ownership for my assets?  

Property - Your title deed is legal proof that you own a property. The title deed should contain either your business details or personal details. It should also give a full description of the property, address and size. It’s important that your title deed have the correct ownership details so it can be used as collateral against a loan.  

Equipment – any form of equipment that you use for your company can serve as collateral. This is a much lower risk option than property, however, if you seize to pay the loan you might lose your equipment in turn having to halt business operations. The types of equipment you can use as collateral can be anything from printers and computers to heavy machinery. You’ll need the receipt or invoice issued as proof of purchase. Lenders will likely use your receipt to asset the value and check if it is likely to depreciate. The equipment you put up as collateral will need to be in good condition, operational and have a reasonably high market value.  

Movable assets - these are assets that can be easily moved, so for example a car, boat or helicopter. Generally speaking, the higher in value, and less likely to depreciate significantly the more likely you can use the asset as collateral. So, for instance, personal vehicles are lower-value items so often our lenders at FundingHub will require an additional asset to secure the funding. Where high-value movable assets like boats & helicopters are much easier to use to secure funding. For both a helicopter and boat you’ll need transfer of ownership documents as proof of purchase.  

Secured loan vs unsecured loan – what’s the difference?

A secured loan is a type of lending that is backed by an asset, such as a property, equipment, vehicle or debtor’s book. The borrower uses the asset as collateral for the loan and if they default on their payments, the lender can take possession of the asset and sell it to repay the loan.

An unsecured loan is a type of lending that does not require any collateral from the borrower. The lender will usually charge higher interest rates to compensate for this lack of security. If you don’t have an asset you can use as collateral to secure funding, an unsecured is your best bet. FundingHub can assist you with comparing offers from reputable unsecured finance lenders.  

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