Best Secured Business Loans to Consider in 2024

In this review, we highlight the terms, rates and fees of each secured business loan, and explain what makes them a good choice. We also share potential downsides of each company, and provide a rating methodology you can use to select the best secured business loan option for your needs.

Beyond their collateral requirement, secured business loans are no different than other small business loan options on the market. They can be used for a variety of expenses, such as working capital, purchasing real estate, or buying equipment. Whether you're searching for the best small business loans or specifically tailored secured loans,  our experts reviewed and ranked the best secured business loan options available to help you get funded.

How to Choose the Best Secured Business Loan

There are many different factors that you need to consider when you search for the best secured business loan. Here’s what our experts looked at:

• Loan Features: You’ll need to think about loan terms, repayment options, interest rates, and loan amounts. Generally, choosing a secured business loan may help you access a higher loan amount then if you chose a similar unsecured business loan option.
• Application process: You’ll need to look at the invasiveness of the application information requirements, whether there’s a hard-pull or soft-pull on your credit, and the funding time. For secured loans, you'll usually need to provide some specific information about your assets.
• Interest rates and fees: Learn about the different types of fees that the loan requires, as well as the minimum and maximum interest rates offered.
• Qualification process: Educate yourself on the qualification process, including any requirements for minimum credit score, annual revenue, or business history. Typically, choosing a secured business loan allows for more lenient qualification requirements.
• Customer support - Consider the accessibility to a live customer support representative, the degree of multi-channel support, and the availability of supplemental information and tools.
• Online user reviews: Be sure to read reviews on independent review sites like Trustpilot.
• Perks and Bonuses: Look for any specified service offerings, such as payment flexibility, advertising transparency, or advanced technology.

What Is a Secured Business Loan?

A secured business loan is a type of borrowing in which one or more of your business assets is used as collateral. If you fail to keep up with payments, the lender may seize this collateral to cover the cost.

Typically, lenders will accept the following assets as collateral: commercial property, inventory and stock, large pieces of equipment and machinery, vehicles, and unpaid invoices. Interest rates on secured loans tend to be lower than other borrowing arrangements, but they present a greater risk to the borrower.

Traditional lenders, like brick-and-mortar banks, prefer this type of borrowing. There’s also a host of alternative, online platforms that provide secured debt arrangements.

Secured Vs. Unsecured Business Loan: What’s the Difference?

The main difference between a secured business loan and an unsecured one is collateral. Secured loans require it; unsecured business loans don’t. If you’re able to put down collateral, we recommend doing so. It eliminates risk for the lender and therefore gives you better interest rates and terms.

For unsecured business loans, take a look at these best loans for working capital.

Below is a breakdown of the differences between secured and unsecured business loans:

• Risk - Secured loans will require you to put down one or more of your business assets as collateral. Should you fail to keep up with the payments, the lender may seize those assets to cover the cost. Because of that, the lender will be able to offer you a lower rate.
• Interest rates - Rates generally tend to be much lower for secured loans than unsecured business loans. This is attributable to the collateral associated with the former. It greatly reduces the risk of lending, thereby enabling creditors to offer lower rates.
• Borrowing limits - Because you’re borrowing against the value of a specific asset, the lender can offer greater financing flexibility. In some circumstances, the loan amount can be quite high. For example, if you post a fleet of vehicles, an expensive piece of machinery, or an expansive stock inventory, your borrowing limit could easily reach hundreds of thousands of dollars.
• Term limits - This is another area where secured loans come out on top. You might find terms as long as 10 or 25 years, while unsecured business loan options tend to hover at around five-year limits.

Types of Secured Business Loans

• Mortgage - A mortgage loan is the most recognizable type of secured loan. Like a residential home loan, it entails the pledging of real estate property. For businesses, the property pledged is a commercial real estate asset.
• Equipment financing - With this type of arrangement, the borrower purchases a specific piece of equipment and simultaneously pledges it as collateral. Lenders will usually provide between 80% and 100% of the total value of the asset being purchased. Here are the top equipment financing lenders.
• Term loan - A term loan is a traditional type of fixed-rate borrowing that entails a fair amount of flexibility regarding collateral. Most term loans do not require collateral, but if you have it, it’s worth mentioning to the lender to see if you can get a lower rate.
• SBA 7(a) loans - Small Business Administration (SBA) loans are guaranteed by the federal government, usually on an unsecured basis. However, those borrowing more than $350,000 must provide some form of collateral. Here are our top recommendations for SBA lenders.
• Business line of credit: A business line of credit can be secured or unsecured, but a secured business line of credit requires collateral. The collateral can be business assets such as equipment, inventory, or accounts receivable.

Types of Collateral to Secure a Business Loan

Collateral is any asset that backs the loan, including cash reserves. This makes the loan significantly less risky for the lender because if you are unable to make the payments, the lender is able to confiscate the collateral. Types of collateral for secured business loans include:

• Inventory - This is a popular choice for predominantly product-based businesses, such as e-commerce stores and retail outlets that carry large amounts of stock. Bear in mind, you’ll need inventory with long shelf lives to qualify for funding.
• Property - This is a very common source of collateral, but quite risky in the event of default. Failure to keep up with payments could have a significant impact on your business.
• Equipment - Another popular choice for businesses is the pledging of equipment. This route is most often taken when purchasing equipment, vehicles, and/or specialized machinery. It is probably one of the easier types of funding to secure, given the transparent and easily verifiable nature of the purchased asset.
• Invoices - Many businesses have long turnaround times on invoices and might not receive payment for work until months after completion. Lenders can accelerate the cash flow by providing funding, as long as you are willing to pledge the invoices as collateral.
• Blanket lien - This is a common arrangement for borrowers with poor credit. A blanket lien gives the lender full discretion to use any of your business assets to cover your debt in the event of default.

How to Get a Secured Business Loan?

Step one - Do your research

Make sure your chosen lender will accept the type of collateral you’re offering. Some will ask for specific items of equipment or inventory, while others will provide a blanket lien. You should understand what’s at risk before you apply. It might also be worthwhile to perform a valuation of your assets beforehand.

Step two - Start submitting applications

Most alternative lenders will let you submit an application without facing a hard pull to your credit rating. This is a great way to assess your financing potential. We recommend trying a few loan marketplaces to help increase your chances of finding an optimal solution.

Step-by-step business loan application process explained

Step three - review eligibility criteria

Each lender has distinct criteria you’ll need to meet before you can apply. A few fairly common criteria include your credit rating, the length of time you’ve been in business, and your monthly income. All criteria should be made clear before you apply.

Step four - Gather your documentation

Once you’ve chosen a lender and the type of secured business loan you’d like, it’s time to prepare your documentation. Most secured loans will require, at a minimum, the following items:

• Proof of identity
• Evidence of your monthly income
• Evidence of ownership of any asset being used as collateral
• Personal and business tax returns
• Three months of bank statements

In addition, many lenders will ask for business licenses and leases, along with other pertinent information related to your business.

Secured Business Loans Pros and Cons

Secured Business Loan Pros

• Low-interest rates. Since lenders are almost guaranteed to recover the money being loaned, either through the receipt of regular payments or seizure of collateralized assets, credit risk is low. As a result, lending rates tend to be relatively low.
• High funding limits. When taking out a secured loan, the limit can be quite high relative to an unsecured arrangement. This is especially true if you have a particularly valuable asset to use as collateral.
• Easier to obtain. If you’re already in possession of a high-value asset, oftentimes, it can be used as proof of previous business acumen. Moreover, if pledged as collateral, it can facilitate a loan approval.
• Long repayment terms. Since lenders have a good idea of the lifetime of any assets pledged, this can often result in generous repayment terms, often up to 25 years.

Secured Business Loan Cons

• Higher risk to borrower. Borrowers should always be aware that any asset they pledge as collateral could potentially be seized in the event of default. Make sure the collateral you pledge isn’t critical to your business.
• Must have an established business. It’s very rare for startups to be able to access secured funding, simply because they haven’t been around long enough to accumulate a pool of marketable assets. This usually translates to relatively high-interest rates for newbies.

Final Thoughts

While secured business loans do require that an asset be used as collateral to secure the funding, they also have their advantages. Often, choosing a secured business loan can help you access a better interest rate and more lenient qualifying requirements. If you’re interested in accessing this type of loan for your business, use this list of lenders to help you get started finding the right match for you.