The short version
- A secured business loan is backed by property or business assets.
- Security usually means a lower rate and a bigger limit.
- If the business can't repay, the lender can sell the security.
How security works
The lender takes security over property, a vehicle or equipment, and can sell it if the loan isn't repaid. Loans secured against a home are often called residentially secured and usually carry the lowest rates.
Using your home as security for a business loan puts it at risk if the business struggles, so get independent advice first.
Pros
- Lower rates than unsecured business loans.
- Larger amounts and longer terms.
- Easier approval for newer businesses with good security.
Cons
- Your property or assets are at risk.
- Slower to arrange, as the lender values the security.
- Valuation and legal fees add to the upfront cost.
What to compare
Business loans don't have to show a comparison rate, so add up the costs yourself: the interest rate, any establishment and ongoing fees, and what it costs to repay early.
Business lending isn't covered by the responsible lending rules that apply to personal loans and home loans, so a lender won't necessarily check the loan suits you. Work out what you can afford before you apply.
What you'll need to apply
Lenders usually ask for:
- Your ABN, and how long the business has been trading. Many lenders want at least one to two years.
- Business financial statements and tax returns, or recent bank statements and BAS for smaller loans.
- Details of any property or asset offered as security.
- A personal guarantee from the directors or owners, which makes you personally liable if the business can't repay.
Alternatives
- An unsecured business loan, quicker and with nothing at stake, but at a higher rate.
- Equipment finance or a chattel mortgage, for vehicles and machinery. The item secures the loan, so the rate is usually lower.
- A business overdraft or line of credit, for costs that come and go. You pay interest only on what you use.