Secured Commercial Loan: Unlock Your Property’s Value

By: Aaron Robbins0 comments

Secured Commercial Loan: Unlock Your Property’s Value

If you’re seeking capital to expand your business, secured lending presents an affordable option to secure the necessary funding. By offering an asset as collateral, you mitigate some of the lender’s risk and can potentially gain access to more competitive interest rates than unsecured business financing. With property prices having risen across Australia over the past few years, business owners are looking at how they can unlock their property’s value to secure a commercial loan.

Below, we look at how commercial loans are secured using property and discuss the potential benefits of a secured commercial loan for your business aspirations.

What are secured business loans and commercial loans?

The terms ‘business loan’ and ‘commercial loan’ are used interchangeably in Australia. They refer to loans obtained by businesses or commercial entities to finance various aspects of their operations, such as expansion, purchasing equipment, inventory management, working capital, or other business-related needs.

The difference between secured and unsecured loans

Secured business lending refers to a financing method that utilises an asset owned by you or your business, such as property, equipment, or accounts receivables, as collateral for the funding you require. By pledging an asset, you provide security that reduces the lender’s risk.

Secured loans tend to have lower interest rates than unsecured business loans due to the asset’s security. In the event of repayment default, the lender can assume ownership of the asset to recoup the financing cost. On the other hand, unsecured business lending lacks collateral protection. If you fail to repay the funding, the lender does not automatically seize your personal or commercial assets. However, an unsecured loan tends to be more expensive.

How do secured business loans work?

Secured business lending functions as a form of debt finance. The financing provider agrees to lend your business a specific amount based on the loan product itself, your needs and your serviceability for the loan. If you choose to use an existing property that you own as collateral for the loan, then generally, it is not the total property value that’s used as collateral but rather the amount of available equity that is sitting in the property value. Of course, if you own the property 100% outright, then your equity could be 100% of the property value!

How do I repay the loan?

The way secure loans are repaid differs depending on the lender and the product type. In the case of a secured business loan from a bank, you will typically need to make monthly payments comprising both principal and interest after receiving the funds. Similar to a residential mortgage, the interest rate on a bank’s secured business loan can be fixed or variable.

If you access a non-bank lender (such as a private lender)for your secured finance, then chances are that they will agree on a suitable exit strategy and then a subsequent repayment schedule for you to repay the loan. The loan term will certainly play a role in determining how the loan is to be repaid and whether you repay the loan through interest-only repayments or by paying down the principal and interest on the loan amount.

What can I use a secured commercial loan for?

Unlocking a property’s equity to access a secured business loan will not be in every business’ owners best interest, however, some of the commonly used purposes for secured business loans are:

Improving business cash flow or working capital

Secured business finance can help a business to improve cash flow or working capital. The funds could also be put towards ventures such as human resources, expansion, research and development, business acquisitions or buy-outs, technology investments or even inventory financing.

Renovating or purchasing another business premises

If your business plans include an expansion or simply a revamp, then a secure business loan could potentially help by providing the funding to renovate or purchase another business space. Some short-term secured loans also help provide a financial bridge between buying a new space before selling your existing property.

Investment

Secured loans can assist business owners in purchasing commercial properties or investing in real estate ventures related to their business activities. Most business loans come with shorter loan terms than standard investment mortgages and other investment home loans.

How can I compare secured business loans?

Not all lenders in Australia offer secured business loans, and not all commercial loans will suit your intended purchase. As with any large business decision, conducting research is key when sourcing secure business finance. Business owners in Australia are notoriously time-poor, which is why many appreciate the value of a reputable finance broker.

By working to understand your unique needs, Diverse Funding Solutions can call on one of over 200 Australian private lenders to help access a loan amount, loan term and interest rate that appeals to you. The lenders we access offer a vast array of business loans and secured loan products.

If you or your business owns a residential or commercial property, call the team at Diverse Funding Solutions to learn more about your options for unlocking your property’s hidden value to keep your business moving forward.

Frequently asked questions about secured commercial loans

What property type can be used as collateral for a secured business loan?

Most lenders allow commercial and residential property to be used as collateral for secured finance.

Can I get a secured business loan with bad credit?

Your business credit history (or your personal credit history) will play a part in the application and approval process of most business loan applications. If you or your business have a poor credit history (or you’re a small business with limited business income verification), you may experience difficulty in accessing business loans. That’s not to say they aren’t available to you, though. Private lenders and other specialist bad credit lenders are able to assess your financial situation, ignoring your credit history for the most part and working with you to source an appropriate secured loan.

Will my property need to be valued?

Depending on the lender’s application process, either an informal or formal valuation will need to occur to help determine how much usable equity sits in your property value.

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