What is a secured business loan, and should you get one?

A secured business loan is borrowing backed by an asset, such as commercial property, equipment, stock or, in some cases, a director's personal property. These assets act as security for the lender and they can claim it if the loan isn't repaid. 

In exchange for offering a valuable asset as security,  you can typically borrow larger amounts or at lower rates than unsecured borrowing.Note, this guide is for informational purposes only and does not constitute financial advice. 

How a secured business loan works

When you take out a secured business loan, the lender registers a legal charge against the asset you're using as security. A legal charge gives the lender the right to seize and sell your business asset if you fail to repay your loan.

Commercial assets are the most common form of security, including business property, equipment, vehicles and stock. In comparison, an unsecured business loan allows you to borrow without posting security. For the full mechanics, see our guide to secured vs unsecured loans.

How much you can borrow usually depends on loan-to-value, which is the loan amount as a percentage of what the asset is worth.

Terms can also run considerably longer than unsecured borrowing, sometimes a decade or more when the loan is secured against property. For some businesses, that longer repayment period is as much a reason to choose secured business lending as the rate itself.

Typical use cases for a secured business loan

Secured business finance tends to suit a few specific situations. The most common is borrowing a larger amount than unsecured lending typically allows. 

It can also work for a business that doesn't meet unsecured lending criteria, perhaps because of a shorter trading history or weaker credit profile, but that has a valuable asset to offer instead. It often suits commercial property purchases or major, long-term capital investment, where a longer repayment term genuinely matches the spend.

Securing a business loan against residential property

A lender may ask a company director to put residential property up as security for business borrowing. This can include the director’s own home, with some lenders offering a second-charge arrangement where an existing mortgage already has priority.

The consequences can be extremely serious if the loan is unpaid. If a business fails to keep up with repayments on a secured business loan, the lender may ultimately enforce its security and seek repossession of the property.

In other words, using your home as security puts the property itself at risk if your business cannot repay.

This should not be confused with a personal guarantee, which makes the individual personally responsible for repaying the business debt if the company defaults. On the other hand, a property charge gives the lender security over a particular property.

As your home could be at risk when posting residential property as security, independent legal and financial advice should be obtained before reaching agreement with a lender.

Advantages and disadvantages of a secured business loan

If you're considering a secured business loan, there are two key questions to ask. Can you qualify for one, and does using an asset as security actually make sense for your business?

Pros

• Potentially larger loan amounts

• Longer repayment terms may be available

• Potentially lower headline rates

• May suit businesses that don't meet some unsecured lending criteria

Cons

• The asset used as security is genuinely at risk if you can't repay

• The application process can take longer because valuations and legal charges may be required

• It can be less straightforward to sell or refinance the secured asset

• A lower rate over a longer term doesn't necessarily mean lower overall borrowing costs

Before choosing secured borrowing, consider whether you actually need to put an asset at risk. Depending on how much you need and your circumstances, an unsecured loan may provide enough funding without requiring security.

Practical tip: Use a soft-search eligibility checker before making a formal application. This lets you compare your options without triggering a hard search on your credit file.

Secured business loan rates

There is no single typical rate for a secured business loan. Rates can vary significantly depending on the lender, the asset being offered as security and the level of risk involved, so avoid relying on a headline figure. To find out what you could actually pay, you'll need to get a specific quote based on your circumstances.

When comparing options, look beyond the advertised rate and check the total amount repayable. A lower rate over a much longer term can cost more overall than a higher rate over a shorter term, because you'll be paying interest for longer.

Alternatives to secured business loans

A secured business loan isn't the only way to raise finance. Depending on what you need the money for and your business circumstances, alternatives include the following five options.

• Unsecured business loans: Borrowing based primarily on your business and personal credit profile rather than security over a specific asset.

• Invoice finance: Releasing funds tied up in unpaid customer invoices, so you can access some of their value before customers pay.

• Merchant cash advance (MCA): An advance repaid through an agreed percentage of future card sales.

• Equity finance: Raising money from investors in exchange for a share of ownership in the business. There are no loan repayments, but you give up part of the business.

• Asset finance: Financing the purchase or use of equipment, vehicles or machinery, with the asset potentially forming part of the lender's security.

The right option depends on how much you need to borrow, what you need the funding for and what you're prepared to offer in return.

Go beyond secured loans with Funding Circle

Funding Circle's core business loan is unsecured, with borrowing available from £10,000 to £750,000 and no charge over your property or other assets required. If you're considering a secured loan mainly because you assume you need one, it's worth checking whether an unsecured business loan could cover the amount you need without putting your home or other assets up as security.

If you need funding specifically to buy equipment, vehicles or machinery, asset finance through our Marketplace can secure the borrowing against the asset being financed rather than your home or unrelated property. This is a different form of security and carries a different risk profile.

A personal guarantee may also be required for a Funding Circle business loan. This is different from security over a specific asset, but it is still a personal commitment to repay if the business cannot. Consider taking independent legal advice before giving a personal guarantee.

Funding Circle lends to UK limited companies and LLPs that have been trading for at least 12 months. There is no published minimum turnover requirement, as each application is assessed individually. Check your eligibility in around 30 seconds to see whether you may qualify without affecting your credit score.

FAQs

What is a secured business loan?

A secured business loan is borrowing backed by an asset, such as property or equipment, that the lender can claim if the loan isn't repaid. It can allow larger amounts, lower rates or longer terms than unsecured borrowing.

Can I get a business loan secured against my house?

Some lenders will accept a director's home as security for a business loan, sometimes as a second charge behind an existing mortgage. If the business can't repay, the lender can ultimately seek repossession of the property. Take independent legal and financial advice first.

Is a secured business loan the same as a personal guarantee?

No. A personal guarantee is a promise to repay the debt yourself if the business can't, while a secured loan places a legal charge over a specific asset. Some lenders ask for both, so check exactly what you're agreeing to before you sign.

What happens if I can't repay a secured business loan?

If you fall behind, contact your lender as early as possible, as they may be able to agree to a revised arrangement. If the loan still isn't repaid, the lender can enforce its charge and take possession of the secured asset to recover what it's owed.

Disclaimer

16/10/26 – While we want to help as much as we can, the information found here is provided solely for informational purposes and should not be considered financial or legal advice. To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, the information contained here. If you have any questions, please speak to your professional adviser or seek independent legal advice.