Secured business loans are a common source of finance in Australia, especially for small to medium-sized businesses.

The right loan can help your business to grow, to capitalise on an opportunity, or to better manage your cash flow.

In fact, borrowing money is normal for businesses and secured loans are a great finance option.

Read on to find out everything you need to know about secured business loans, including:

  • what they are.
  • answers to FAQs.
  • why it’s more likely you’ll get approved (and approved faster) for secured finance with a private lender than a bank.

Are business loans secured or unsecured?

Business finance can be either secured or unsecured. Secured business loans are the opposite of unsecured loans.

Unsecured finance doesn’t require you to put up any assets as lender security.

 

How do secured business loans work?

A secured business loan works like any other contractual finance or credit arrangement.

You borrow the funds you need over a set term, and you have to repay the amount you borrow (called the ‘principal’ in financial jargon) plus interest and any associated fees during that term.

You arrange regular repayments as part of your loan contract.

If you don’t make your contracted repayments, the lender can repossess and sell the asset you have provided as security to recover the debt you owe.

But if you make all your repayments, the lender has no claim on your loan security asset. It is only provided as a form of insurance to lower the lender’s risk of you not repaying your loan.

Once you have fully repaid your loan, the lender will also have no future claim on your asset. The title can revert to you and/or your business, or you could potentially use the asset as security for another loan.

What can be used as collateral for a business loan?

Business loans are secured by assets like commercial or residential property, business vehicles and equipment.

 

They can also potentially be secured by the value of your debtors/accounts receivable.

 

How are business loans secured?

The lender registers their financial interest in the asset.

For property, this can be done via registering a first or second mortgage document with the government land title office in the relevant State or Territory.

It can also be done via registering a caveat over the property with the relevant titles office.
A caveat prevents you from selling the property while the caveat is in place.

For vehicles or business equipment, lenders register their interest via the Personal Properties Security Register.

What if I don’t fully own the property I want to put up as security?

If you’re still paying off the property you want to use as security, you can usually use the level of equity (ownership) you have as security for additional finance.

For example, if you have a property worth $800,000 and you owe $300,000, you have $500,000 worth of equity that you can potentially use as your collateral for a secured loan.

 

What can you use a secured business loan for?

You can use a secured business finance for a wide range of purposes, including:

  • buying equipment and machinery to grow your business.
  • buying more stock to increase your sales and profits
  • working capital to help your business operate day-to-day.
  • refinancing multiple debts to make your repayments easier to manage.
  • buying or renovating new business premises.
  • helping with any short-term cash flow issues.

 

Can I get a secured business loan if I have bad credit?

Yes, if you use a private lender.

At DFS, we are private lending specialists.

We usually don’t even do credit checks for clients wanting secured loans.

The assets our clients provide as collateral for their secured finance gives our lenders all the security guarantee they need.

On the other hand, banks are much more likely to decline your secured loan application if you have bad credit.

They check credit scores with any loan application via credit reporting agencies like Equifax.
And to make matters worse, if they decline your application your credit score will go down further.

What are the benefits of a secured business loan?

  • they have lower interest rates than unsecured loans.

That’s because they provide the lender with more security. Unsecured finance has higher interest rates to compensate the lender for the higher risk.

 

  • you can borrow more than you can with unsecured loans

They are less risky for lenders, so they increase your borrowing power.

 

  • you can borrow for longer terms than you can with unsecured loans.

They are ideal if you won’t be in a position to repay the finance quickly.

 

  • they get approved faster (especially if you use a private lender).

Secured loans usually have a faster approval process than unsecured loans because they are less risk.

 

  • they may not require credit checks (especially if you use a private lender)

Again, that’s because they are less risk to the lender.

 

What are secured business loan interest rates?

Interest rates depend on the type of security you can provide.

Residential or commercial property is the preferred form of security for most lenders because it tends to increase in value over time (unlike equipment or vehicles).

 

Interest is the single biggest cost of any finance. You should always aim to get the lowest interest rate you can. Interest rates are currently at record lows in Australia, so it’s a good time to borrow.  According to the Reserve Bank governor, low interest rates in Australia are here to stay for the next few years while the economy recovers.

 

Why is it still so hard to get a secured loan with a bank?

The number one priority of banks is their shareholders, not small-to-medium business loan customers.

It’s harder and more time-consuming to get secured finance with a bank in Australia than it is with a private lender.

Banks’ lending criteria are very tough, especially after the economic effects of the COVID-19 restrictions.

The bad publicity surrounding their irresponsible lending practices that were exposed in the Banking Royal Commission has also seen them tighten their lending criteria.

They are gun-shy to approve loans even with government incentives to try and stimulate lending post-COVID-19.

Their application and approval process is also time-consuming. They love paperwork!

Secured finance is low risk for lenders, so there should be no delay in processing your application.

But it often takes days or weeks to get a secured loan approval with a bank.

How to get a secured business loan

The private lending market is the alternative to getting secured business finance from banks.

It’s a rapidly growing sector of the lending market as more and more people become dissatisfied with the levels of service provided by banks.

Private lenders don’t make you jump through so many hoops to get approved and they make approval decisions faster.

At DFS, we can arrange an approval and have funds transferred to your account via our network of private lenders in as little as 24 hours after you apply.

We understand that ‘time is money’ in business, and that good opportunities don’t wait for finance approvals.

We arrange private loans for our business clients around Australia. We have:

  • Simple online applications to get the basic information we need.
  • A network of over 200 private lenders. We will try and match you with a compatible lender who best suits your needs.
  • Fast approvals and settlement.
  • Highly personalised service.

We provide secured finance for a diverse range of sole traders and small-to-medium-sized businesses.

Our loans are legal contracts between our clients and our private lenders.

All of our finance documentation is provided upfront so there are no surprises.

We are 100% transparent.

 

How much can I borrow for a secured business loan?

This depends on the value of the security you provide and how much you can afford to repay.

We can arrange a valuation so you know your borrowing power and repayments.

The higher the value of the security you can provide, the more you can borrow (and vice versa).

Similarly, the more you can afford to repay, the more you can borrow (and vice versa).

And if you can provide us with your business financials, we can help you work that out.

We can also set up flexible repayments to take into account your business cash flow

We know what it’s like to be in business, and we want you to succeed.

Our private lenders will too.

Can you pay off a secured loan early?

This depends on the repayment arrangement you negotiate with your lender. It will be included in the terms and conditions.