What Are Secured Business Loans, and Should You Get One?

Collateral, such as a big business or personal asset, is required for secured business loans. The benefits and drawbacks of a secured business loan are listed below.

A small business loan is the ideal approach to finance a new business or expand an existing one for many entrepreneurs. However, because the risk to financial institutions is higher when lending to startups and small firms, securing a business loan can be challenging.

If you’ve started looking into business lending possibilities, you’ve probably noticed that some banks provide “secured” loans with better interest rates and terms.

Here’s what you need to know to see if you’re eligible for a secured business loan — and whether it’s the best option for your financial circumstances.

 

Business loans: secured vs. unsecured

Because there’s always the danger that a business would fail and be unable to make payments, any commercial lender taking on a loan assumes a large degree of risk. The way a lender mitigates risk is the key distinction between a secured and an unsecured loan.

A secured business loan needs a specific piece of collateral, such as a business vehicle or commercial property, that the lender can seize if you default on the loan. Because the lender has a guaranteed way to get their money back, these loans are frequently easier to get and may have cheaper interest rates. In the event of a default, they can recuperate their losses by selling your collateral.

Unsecured loans, on the other hand, have no collateral tied to them. Unsecured loans include things like personal loans, school loans, and credit cards. To ensure that the lender receives their money back, these loans frequently have high interest rates and strict approval procedures.

 

Blanket liens and personal guarantees

Because an unsecured loan carries a higher risk for the lender, they may need you to sign a personal guarantee before they approve it. This means that if your business defaults on the loan, you will be personally accountable to pay it back.

While a creditor cannot seize your business property as a result of a personal guarantee, they can legally seize your personal assets, including bank accounts, automobiles, and real estate, until the debt is paid off.

Reserving the right to file a blanket lien over your business assets is another frequent way to reduce lending risk. Most business loan conditions include a blanket lien clause, which permits the lender to claim and resell your business assets in order to collect on your debt.

“While many entrepreneurs use their business assets as collateral, your personal assets can also be used to receive a loan.”

 

How do secured business loans work?

The amount of money you can borrow against collateral is determined by the loan-to-value (LTV) ratio granted by your lender, according to The Balance.

For example, if your collateral is worth $100,000 and the lender accepts a 75% LTV ratio, you can borrow up to $75,000 from them.

Keep in mind that if the value of your pledged assets decreases, you may be required to pledge additional assets to keep your secured loan in good standing. Furthermore, you are accountable for making up the difference if your lender removes your assets and sells them for less than the amount you owe.

Some types of collateral most typically used to secure business loans:

• Real estate
• Vehicles
• Machinery and equipment
• Accounts receivable
• Investments
• Bank accounts
• Insurance policies

 

While many entrepreneurs use their business assets as collateral, your personal assets can also be used to receive a loan.

 

Advantages and disadvantages of secured business loans

Borrowing money is always risky, and you should avoid sliding into a debt trap at all costs. Examine your business before considering a loan to ensure that you will be able to repay the loan or, at the very least, the interest on the money you borrow.

Secured loans, on the other hand, provide some substantial advantages over unsecured loans. The following are the benefits and drawbacks of secured business loans:

 

Advantages: 

• Interest rates are lower. Because they come with collateral, secured loans are less hazardous for the lender. You can browse around for the best rates if you have a consistent income, considerable assets, and a strong credit history.
• Loan amounts that are larger. In general, a secured loan allows you to get a significantly larger loan amount because the lender takes on less risk. The greater the loan amount, the more valuable your collateral is and the easier it is to get.
• Payment terms that are longer. Secured loans usually have better repayment terms, allowing borrowers to spread out their payments over a longer period of time. Home loans, for instance, are frequently repaid over a 30-year period.
• With bad credit, it’s a lot easier to get a loan. If you have a bad credit history, you may find it difficult to receive an unsecured loan until you spend months or years improving your credit. Lenders are more ready to issue secured loans because they are backed by collateral.

 

Disadvantages:

• Asset loss is a possibility. The major disadvantage of a secured loan is that if you default, the lender can seize an expensive and valuable business asset. If you’ve put a lot of money into that asset and built up equity, you could lose everything if the lender takes it back.
• Damage to your credit score. Defaulting on any debt can severely harm your credit and limit your future borrowing options. Some lenders will help you avoid default if you encounter a hard patch, because it’s sometimes easier to assist during a temporary lapse than it is to collect and sell the collateral.

 

Do you need a secured business loan?

You might not be able to get a secured business loan if your business doesn’t have much in the way of assets.

A secured loan is your best option for reasonable loan terms and an uncomplicated approval process if your business has a valuable asset that might be used as collateral and you are confident in your capacity to repay the loan.

 

Before applying for a secured business loan, ask yourself the following questions, according to National Business Capital and Services:

• Which assets are you most confident in leveraging?
• What type of terms are you looking for in terms of repayment?
• How much money do you require?
• What are your plans with the funds?

 

• Our guide on preparing to apply for a business loan might assist you if you’re ready to start talking to lenders.

 

 

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Top Secured Business Loans of 2022

What Are Secured Business Loans and How Do They Work?

 

Secured business loans, also known as collateralized loans, are a type of small business loan that is backed by a personal guarantee or a valuable asset. If you don’t pay back your business loan, the lender can legally reclaim their losses by using collateralized assets or a personal guarantee.

In the end, secured business loans will provide you with a superior loan offer—lower interest rates and longer periods. In some ways, you’re providing the lender with reassurance—they’ll receive their money back one way or another.

 

Is a secured loan appropriate for your business? We’re here to assist you in finding out.

We’ll go over everything you need to know about secured business loans in this article, including how they work, what sorts of secured loans are available, and how to apply for the best ones.

As previously stated, secured business loans require some form of collateral (i.e., whatever your company has that can be converted to cash) in order to be approved.

Although secured loans can take numerous forms, as we’ll see below, they’re usually structured as business term loans. In this situation, you obtain a lump sum of capital from a lender and repay it over a predetermined length of time, with interest.

However, when it comes down to it, the majority of business loans are secured in some form. After all, lending to small businesses is a dangerous activity from the lender’s perspective, especially when working with startups or businesses with bad credit.

Secured loans, on the other hand, reduce some of this risk by granting the lender the ability to seize and liquidate certain assets (the collateral used to secure the loan) if you fail.

 

Business Loans: Secured vs. Unsecured

With this knowledge, you might be wondering what the difference is between secured and unsecured loans.

In other words, unsecured business loans do not need you to put up collateral in order to obtain funding.

However, the phrase “unsecured” can be misleading in this context. Although unsecured loans do not require you to provide collateral or tangible assets, the lender will limit their risk by seeking a personal guarantee or obtaining a UCC-lien on your business.

Furthermore, unsecured loans frequently have higher interest rates than secured business loans, owing to the fact that secured loans provide the lender with more security, allowing them to offer you funds at cheaper rates.

 

Learn more about unsecured business loans with our guide.

 

How to Get a Business Loan in 7 Easy Steps

As previously said, collateral (in some form) is essential for secured business loans because it reduces the lender’s risk and makes them more inclined to provide the funds you require.

So, how do you go about getting a business loan? Here are seven options:

 

Property

When applying for a secured business loan, you may be required to put up real estate assets or home equity as collateral. Borrowers most commonly use this type of collateral.

When you put your house or real estate holdings up as collateral for a business loan, you’re giving the lender authority to seize these assets if you default.

Property, on the other hand, does not exclusively relate to physical properties. Equipment, cars, motorcycles, boats, and other items can also be used as collateral on a business loan.

 

Savings

These secured business loans, also known as “cash-secured loans” or “passbook loans,” use the cash in your bank as collateral for the loan.

If you default on your loan, your lender may be able to seize your savings account to recuperate their losses.

Furthermore, from the standpoint of a lender, this is one of the best sorts of collateral. After all, it’s a low-risk situation for them—if you default on your business loan, they’ll get their money back right away.

They also won’t have to deal with the difficulty of selling a real item like a house, equipment, or a car.

 

Invoices 

Many small business owners have customers that don’t pay their invoices on time, resulting in cash flow problems.

Those unpaid bills represent income for your business in this situation, and they can also be used as collateral for loans.

Through a procedure known as invoice financing, many lenders agree to take collateral based on unpaid bills.

 

Inventory 

You can use your inventory as collateral for a loan if you need business funding to buy inventory.

Similar to invoice finance, inventory financing uses your inventory as security in case you can’t sell your products and end up defaulting on the loan.

 

Equipment 

Although equipment can be used to secure a loan as a sort of property, it can also be used to secure a loan in a different way.

If you’re trying to finance the acquisition of new or used equipment, you can use the equipment as collateral on the loan, just like you can with invoice and inventory financing.

 

Blanket Liens

A lien, unlike the other types of collateral we’ve discussed thus far, is a legal claim linked to a business loan that allows the lender to seize and sell the business’s assets in the event of failure.

A blanket lien, as the name implies, is the most extensive lien—and the best for the lender. Blanket liens allow lenders to seize whatever asset or form of collateral a business owns in order to recoup their losses.

Having said that, while a blanket lien may be utilized as an additional security measure on a loan backed by physical collateral, it’s also commonly used by lenders to lessen the risk of an otherwise unsecured business loan.

 

Personal guarantee

A personal guarantee, like a blanket lien, is a sort of security mechanism used to support a loan.

Having said that, a personal guarantee is an arrangement between you and your lender that puts your personal assets on the line, thereby making you a co-signer on the loan.

As a result, if your business fails on the loan and is unable to repay it, you are personally liable for repayment.

This means that creditors can seize your personal assets, such as your home, investment accounts, and other valuables.

Personal guarantees, like blanket liens, are frequently utilized to “secure” business loans that do not have other types of physical collateral.

You may also be needed to put up collateral and sign a personal guarantee, depending on the lender and the type of loan.

 

The Different Types of Secured Business Loans

Let’s look at the many sorts of secured business loan choices now that you know what can be utilized to secure a loan.

Let’s be clear: practically all business loans are secured in some form. As a result, reading over your business loan agreement before signing and completing the closing process is even more important.

Even if you are not required to provide collateral, the lender may place a lien on your business or need a personal guarantee for the loan.

With that in mind, below are some of the most prevalent types of secured business loans.

 

Term Loans (Traditional)

Traditional term loans, also known as medium-term loans, are the most frequent secured small business loans, as we briefly described above.

Although traditional term loans are available from online lenders, you should first apply with a bank to get the best rates and terms.

If you apply for this type of loan through a bank, you will almost certainly be asked to provide collateral to secure the loan. The type and amount of collateral you’ll require depends on the bank you’re working with, your credit score, and the amount of financing you’re seeking.

However, you should be prepared to submit your real estate holdings, automobiles, equipment, money, and other assets as collateral for these secured business loans in the majority of circumstances.

 

Fast Facts on Term Loans

Do you believe a standard term loan is the best secured business loan for you?

The following are some quick facts about various types of business loans:

Amounts of Term Loans

• Traditional term loans typically range in size from $25,000 to $500,000.

 

Term Loan Conditions

• Traditional term loans typically have maturities ranging from one to five years, though this varies by lender.

 

Long-Term Loans Rates

• Traditional term loans are a cost-effective borrowing option, with interest rates ranging from roughly 5% to 25%.

 

Learn more about business term loans with our guide.

 

SBA LOANS

SBA loans are yet another excellent secured business lending alternative. The Small Business Administration (SBA) offers term loans through three of its most popular loan programs: 7(a) loans, CDC/504 loans, and microloans.

SBA loans aren’t actually issued by the SBA, despite their name. Instead, they’re issued by lending partners like banks and credit unions and are partially insured by the SBA.

Lenders are encouraged to assist small businesses because the SBA acts as a guarantor of these loans. It’s a win-win situation for both the business owner and the lender in the end. Because lenders are willing to take on less risk, you may be able to obtain a larger and less expensive business loan than you would otherwise be eligible for.

However, like other term loans, every SBA loan will require some form of collateral, whether it’s actual assets or a personal guarantee from an SBA lender.

 

Quick Facts on SBA Loans

SBA loans are one of the most popular financing options for small business owners. Here are some quick facts about Small Business Administration loans.

 

Amounts of SBA Loans

• The 7(a) loan program, which is the most popular SBA lending program, allows for loan sums of up to $5 million.

 

SBA Loan Terms

• An SBA loan can range from five to 25 years in length, depending on the loan program you’re working with.

 

SBA Loan Rates

• Although your rate is negotiated between you and your SBA lender, depending on whatever loan program you choose, you may expect an interest rate of from 4% to 13%.

 

In our guide, you’ll learn more about the various SBA loan programs and how they work.

 

Business Lines of Credit

When evaluating different types of secured business loans, business lines of credit should be considered as a financing alternative.

A line of credit is similar to a business credit card in that it provides you with access to a pool of funds from which you can draw whenever you need or desire. You’ll only pay interest on the money you use, and your line of credit will be refilled to its original amount once you’ve paid back the lender.

When it comes to credit lines, you can choose between unsecured and secured solutions. Alternative lenders can provide unsecured business lines of credit up to $100,000; however, the APRs on these products are quite high.

Secured business lines of credit, on the other hand, enable borrowers with lesser income and credit ratings to obtain bigger loan limits at cheaper interest rates. Lines of credit can be excellent secured business loans for startups in this way.

 

Fast Facts about Business Line of Credit

A business line of credit can be a good alternative if you need flexible funding with a secured business loan.

Here are some quick facts:

Amounts of Business Lines of Credit

• Credit lines might be anything from $10,000 to $1 million.

 

Terms of a Business Line of Credit

• Although business lines of credit do not have “terms,” they do have payback schedules that are established once you draw on the line. This timeline will vary depending on your credit line lender, but a business line of credit repayment period typically ranges from six months to five years.

 

Rates for Business Lines of Credit

• With a business line of credit, you only pay interest on the money you take out of it. Depending on your eligibility, these rates can run anywhere from 7% to 25%.

 

Learn more about secured business lines of credit with our guide.

 

Equipment Financing

If you’re seeking capital to buy equipment, as we discussed earlier, you can check into equipment financing.

Equipment financing is a sort of self-securing business loan in which the loan is secured by the equipment itself. Because equipment financing is self-collateralizing, businesses that don’t have other types of collateral to offer can still get the money they need.

Furthermore, equipment finance providers are frequently eager to engage with newer enterprises and business owners with bad credit scores. In this approach, one of the greatest types of secured business loans for bad credit and startups is equipment financing.

 

Fast Facts on Equipment Financing

Overall, equipment loans are short-term secured business loans that work similarly to a personal car loan.

Here’s what you should be aware of:

 

Equipment Financing Amounts

• The loan amount is determined by the type of equipment, its price, and whether it is new or old, although it can be up to 100% of the equipment’s value.

 

Equipment Financing Terms

• Equipment loans usually have terms that last for the expected lifetime of the equipment. As a result, the terms are often five or six years long.

 

Equipment Financing Rates

• Interest rates range from 4% to 40%, with rates on the higher end of the spectrum more likely for startups and businesses with bad credit.

 

Learn more about equipment finance with our guide.

 

Invoice Financing

Invoice financing (also known as accounts receivable financing) is a sort of self-securing funding similar to equipment financing that is appropriate for businesses who do not have additional collateral to offer.

You don’t have to put up any of your personal assets as collateral for an invoice financing loan because your outstanding invoices act as collateral.

Furthermore, because invoice finance providers typically consider your customers’ payment history in addition to more traditional qualifications, this form of funding can be significantly easier to obtain—making it a wonderful alternative for businesses with less-than-perfect credit.

 

Fast Facts about Invoice Financing

Invoice financing addresses a typical and aggravating problem for small business owners: you’re waiting for customers to pay your outstanding invoices, and your cash flow is suffering as a result.

Here are some quick facts:

 

Amounts of Invoice Financing

• Typically, invoice finance providers will advance you up to 85% of the amount of your outstanding invoices, with the remaining 15% held in reserve.

 

Invoice Financing Terms

• Invoice finance, like a business line of credit, does not have traditional “terms.” Instead, the timing of receiving the remaining 15% held in reserve by the finance business is determined by when your customers pay their invoices.

 

Invoice Financing Rates

• A 3% processing fee and a 1% “factor fee” for each week it takes your clients to pay their invoices will normally be deducted from the 15% held in reserve by the lender. After your customers pay, you’ll receive the remaining 15%, minus fees.

Learn more about invoice financing with our guide.

 

Inventory Financing

Finally, inventory financing is one of the last sorts of secured business loans. Inventory financing, like invoice and equipment financing, is a self-securing loan.

However, inventory financing can come in a variety of forms, including a medium-term loan, a line of credit, or a short-term loan, but they all serve the same purpose: you’re given money to buy inventory.

Then, of course, you repay the lender over time, plus interest, using the inventory as collateral for the loan.

Inventory financing is a good option for businesses that don’t want to risk their personal assets. But there’s a catch: if you can’t sell your inventory for enough money to pay off your loan, the lender isn’t likely to be able to either. As a result, lenders may be unwilling to provide these collateralized inventory-based secured business loans.

 

Quick Facts on Inventory Financing

As previously stated, inventory financing can take numerous forms. What you should know about this form of secured business loan is as follows:

 

Amounts of Inventory Financing

• You might not always be able to acquire a loan that is equal to the complete liquidation value of your inventory, just like you might not be able to get a loan that is equal to the total liquidation value of your commercial real estate. Instead, a lender can provide you 50% to 80% of the value of the inventory.

 

Terms of Inventory Financing

• You’ll find a variety of term lengths because inventory finance can take many different forms. However, because the goal is to sell the inventory you buy as soon as possible, a period of more than three years is uncommon.

 

Inventory Financing Rates

• Interest rates vary widely depending on the type of financing, the lender, and, of course, the qualities of your business. In general, rates will likely range from 8% to 10%. Higher rates are more likely to be seen for short-term, quicker products. Higher rates are also more likely to be faced by newer businesses and those with weak credit.

 

Learn more about inventory financing with our guide.

 

Best Secured Business Loan Lenders

When it comes down to it, a few financing choices, such as merchant cash advances, don’t require any form of guarantee or collateral. Although unsecured business loans such as these exist, you must weigh the benefits and drawbacks.

Lenders will charge high interest rates on unsecured business loans since they don’t know if they’ll be able to reclaim their money if you default.

Even if you’re scared to put your assets on the line, being a responsible borrower—only taking on debt you think you can handle, paying on time and in full, and communicating with your lender about any issues—is the greatest way to protect yourself from losing them.

As a result, here are some top lenders to consider if you’re seeking the best secured loan for your business.

 

Most Commonly Asked Questions

 

Is it easier to receive a secured business loan?

• In general, secured loans are easier to obtain because providing sufficient collateral on a loan increases your chances of being authorized by a lender. After all, the more collateral you can provide, the lower the risk for the lender to give money to your business.

Secured loans are also significantly easier to obtain for businesses with poor credit or no track record. In fact, these businesses will find it exceedingly difficult to obtain cash without securing their loan in some way.

 

Learn more about the simplest business loans in our guide.

 

What is the average time it takes to acquire a secured business loan?

• The time it takes to acquire a secured business loan approved and get funds is highly dependent on the type of loan and the lender.

Secured business loans from online, alternative lenders will be the quickest in general, with some lenders funding in as little as one day. SBA and bank loans, on the other hand, will take much longer to finance, ranging from a week to several months.

To that end, if you want to speed up the loan procedure, you should supply all essential information—including collateral details—up front, as well as promptly and completely answer any extra inquiries from the lender.

 

What does it indicate when a loan is secured by all of a business assets?

• A loan secured with all business assets is exactly what it sounds like: you’ve utilized all of your business assets to secure financing.

 

Most lenders, on the other hand, will not demand you to put up all of your physical business assets to secure a loan, hence this phrase may be more correctly used to loans secured by a blanket lien (or even a personal guarantee).

By issuing a lender a blanket lien, you are giving them the legal ability to seize all of your business’s assets in order to recuperate their losses if you default on the loan.

 

As a startup, can I acquire a secured business loan?

• Secured business loans are available to startups in a variety of forms. In fact, a business will find it far easier to obtain funding through a secured loan rather than an unsecured loan.

To this point, self-securing business loans—equipment financing, inventory financing, and inventory financing—are particularly attractive to startups who lack the physical assets or money to use as collateral for other loan products.

 

Is it possible to acquire a secured business loan if I have bad credit?

• Yes, secured business loans are available to businesses with bad credit. If your business has bad credit, though, your loan alternatives may be limited, and you’ll almost certainly pay higher interest rates than businesses with excellent credit.

Businesses with bad credit, on the other hand, will find it difficult to obtain unsecured business loans, as lenders will want to limit their risk by requiring some form (or numerous forms) of collateral.

Businesses with bad credit, like newer businesses, may resort to self-secured business loans as their first choice, as the self-collateralizing nature of these products makes them easier to qualify for.

 

Learn more about the best bad credit business loans with our guide.

 

Final Thoughts

At the end of the day, if you’re searching for funding, you’ll almost certainly be evaluating your secured business loan choices.

While an SBA or regular term loan is the best option because of the long periods and low interest rates, they can be slow to finance and difficult to qualify for.

As a result, businesses in need of quick cash, as well as startups and those with weak credit, should choose lines of credit or self-securing finance, such as invoicing, inventory, and equipment financing.

Finally, keep in mind that the best secured loan for your business is not only one that you qualify for, but one that you can truly afford.

To this point, before agreeing to any form of financing, make sure you understand the exact cost of the debt and that you’ll be able to stick to the payment schedule—that way, you won’t lose any of the collateral you’ve put up.

 

Apply today with G-Force Funding for business loans from $10,000 – $1,000,000.

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Getting a Business Loan in 2022

 

A secured business loan is one that necessitates some type of collateral. Collateral refers to the assets that a lender uses to ensure that a loan is repaid. If a business defaults on a loan, the lender has the right to seize the collateral in order to recuperate their losses. Real estate and equipment are examples of collateral.

Unsecured loans, on the other hand, do not necessitate any form of security. Unsecured loans, on the other hand, have higher interest rates and shorter repayment durations than secured loans because they are riskier for the lender. Secured loans are more appealing to business owners than unsecured loans because they are easier to qualify for, have lower interest rates, larger loan amounts, and more flexibility.

 

What’s the best way to get a business loan in 2022?

Often times you must be able to offer up business or personal assets as collateral that can be converted into cash in order to receive a business loan with a very low rate. Here are a few examples of what can be used as collateral for a loan:

• Properties like personal real estate, as well as commodities like cars, boats, and motorcycles..
• Equipment like machinery and other equipment that you use to run your business.
• Savings like money in a savings account, checking account, or a business loan secured by a certificate of deposit (CD).
• Inventory: Some lenders will let you utilize your existing inventory as collateral. This is often between 60% and 80% of the total worth of the items.
• Invoices: Borrowers can seek an advance on their overdue invoices. These bills are subsequently put up as collateral for the loan.
• Investments like stocks, bonds, and mutual funds.
• Valuables like items such as jewelry or collector’s items.
• Blanket liens: In the event of a default, a blanket lien permits the lender to sell any asset owned by the business to recuperate their losses.
• Personal guaranty: If your business defaults on a loan, you’ll be personally accountable for repaying it with personal assets if you sign a personal guaranty.

 

Business loans: unsecured vs. secured

Unsecured loans do not require collateral, but secured loans must. As a result, the loan application process and the structure of each form of loan differs.

When you apply for an unsecured loan, the lender will place a greater emphasis on your credit score and repayment history than if you applied for a secured loan. Because unsecured loans aren’t secured, lenders are more likely to provide lower amounts of money and shorter repayment terms. An unsecured loan may require a personal guarantee, which means you are responsible for repaying the debt if the business fails. A lender may also place a blanket lien on all your business assets, meaning the entirety of your business’ assets become collateral.

Even yet, if you have a solid credit score and need money quickly to take advantage of a business opportunity, an unsecured loan may be a suitable option. Because there is no collateral to appraise, the application process for unsecured business loans is usually simpler, which means you could get your money quickly.

 

Secured company loans have a number of advantages:

• It’s a lot easier to qualify for, offering collateral lowers the lender’s risk, increasing your chances of receiving money. A secured business loan provides a way to funding and the opportunity to rehabilitate one’s credit score for business owners with bad credit.
• The lesser the lender’s risk, the more favorable the terms are likely to be. It’s possible to receive a huge quantity of money with a long repayment term and a low interest rate if you have valuable collateral.
• Flexibility for businesses that are just getting started, a secured loan allows you to use personal assets to fund launch expenditures.

 

Secured business loans have a number of drawbacks:

• Collateral loss: If you take out a secured business loan, you run the danger of losing the asset you used to secure the loan if you default. This is a risk that all business owners should consider before taking out a secured loan.
• Funding time: Because the lender must appraise the value of your security, a secured loan can take longer to acquire funding than an unsecured loan.

 

Top 6 best options for secured business loans

 

Small Business Administration Loans (SBA)

SBA loans are secured loans from lenders backed by the Small Business Administration of the United States (SBA). You can apply for an SBA loan through a lender that has been approved by the SBA. The SBA provides a Lender Match service that allows you to specify the sort of finance you require and be matched with an SBA lender in your area.

The SBA 7(a) loan is the most popular type of SBA loan. Your loan amount might be up to $5 million, repaid over five to 25 years, with interest rates starting at around 6%, depending on the sort of SBA loan you get. To be eligible for an SBA loan, you must show that you have exhausted all other options for funding. Typically, SBA loans are secured by assets such as real estate or business equipment.

 

Term loans

Term loans are available from most banks and other lenders. Short-term loans usually have three to 18-month repayment durations and loan amounts ranging from $5,000 to $500,000. Long-term loans can be worth millions of dollars and have repayment durations of up to 20 years.

The criteria for a term loan vary depending on the lender and loan size, but most will look for a good credit score, one to two years of business experience, and strong revenue and cash flow. Business assets such as real estate, equipment, and cars can be used to secure a term loan.

 

Equipment loans

Loans secured by equipment (machines, trucks, etc.) are known as equipment loans. If you default on your loan, the lender will seize and sell the equipment you bought with it to recuperate its losses.

Equipment loans are available from a number of online lenders. The loan amounts start at $5,000 and can go up to $1 million. You must meet your lender’s credit score, time in business, and revenue standards to qualify. The repayment period is usually three to seven years.

 

Invoice factoring

By selling outstanding bills to a factoring company, your business can gain access to funds held in unpaid invoices. The factoring provider then advances a portion of the unpaid invoices (typically 70% to 90%). The factoring company takes a charge when the invoice is paid, then sends you the balance.

The invoice acts as collateral for the loan in invoice factoring. You can apply for invoice factoring online with a number of different alternative lenders. The loan amount can be as high as $5 million. As invoices are paid, loans are repaid. Some factoring companies charge a one-time flat cost per invoice, while others charge a fee that rises in proportion to the length of time the invoice has been unpaid. You must meet the lender’s credit score, time in business, and revenue standards to qualify.

 

Business line of credit

A business line of credit allows you to borrow a specified amount of money from a lender. The line of credit is revolving, so once you’ve paid it off, you’ll be able to use the same money again. Furthermore, you only pay interest on the amount of money you spend (average APRs for business lines of credit can range from 8% to 80% or more).

Banks and online lenders both provide business lines of credit, which typically have credit limits ranging from $1,000 to $100,000. You must put up business assets as collateral for a secured business line of credit, such as commercial real estate. To be considered, you must have a minimum credit score of 500 and six months to two years of business experience. You should also meet the income requirements of the specific lender.

 

Inventory financing

Inventory financing allows you to secure a loan by using your current inventory as collateral. Many online lenders, such as BlueVine, OnDeck, and Headway Capital, offer inventory financing. The loan amounts for inventory financing range from $1,000 to $250,000. The majority of lenders will charge interest on a weekly or monthly basis.

A personal credit score of at least 550 is required to qualify. Lenders will also want to examine at least six months’ worth of financial records. Typical loan periods range from three to 18 months.

 

KEY POINTS:

• A secured business loan is one that necessitates some type of collateral. If the business fails to repay the debt, the lender has the right to seize those assets as collateral.

• Secured business loans provide funding depending on the value of the collateral you put up. The lender will assess the value of your collateral and provide loans based on that value. Once you’ve received funding, you’ll have to repay it according to the conditions of your loan agreement.

• Lenders will accept a wide range of assets as collateral. Commercial real estate, business equipment and machinery, inventory, invoices, blanket liens, and personal guarantees are all kinds of collateral.

• Secured loans are often easier to qualify for than unsecured loans because they are backed by assets. This lowers the lender’s risk, so they may be more willing to lend you money even if you have bad credit or low monthly income.

 

Apply today with G-Force Funding for asset-based loans from $50,000 – $5,000,000.

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Real Estate as Collateral for Asset-Based Business Loans

Small business owners that have equity in their home or commercial land or building and want to leverage that equity to secure finance for their business may find that using both personal and commercial real estate as the foundation for obtaining a business loan is intriguing. With the number of commercial buildings on the rise, a business owner may be able to get a line of credit by leveraging that real estate with a second or third lien. There are around 5,600,000 commercial buildings in the United States in 2021, an increase of roughly 14% over the previous decade. With the rise in commercial buildings (many of which are owned by small businesses who use the space as owner-user properties), a business owner can now use the building’s or land’s net worth to secure financing that would otherwise be unavailable from traditional lenders.

 

What is Asset-Based Lending, and how does it work?

The process of providing business financing based on monetizing the company’s balance sheet is known as asset based lending (ABL). A company’s assets, such as receivables, real estate, inventory, equipment, and machinery can be used as collateral to secure funding. A line of credit is the most frequent asset-based financing facility, while asset-based term loans are also widespread. Other types of asset-based lending include merchant cash advances, factoring, equipment leasing, and invoice financing, in addition to lines of credit and term loans. The asset-based lender will establish a lien (UCC-1) on the asset after providing funding to the company.

 

What is the definition of collateral?

Collateral is an asset that can be used to secure a small business loan from any lender. The lender will place a UCC-1 lien on the business or personal asset when they offer funding to the small business, and if the borrower fails to repay the loan, the lender can seize the collateral to assist recoup their losses. The lender’s risk exposure will be reduced, which will be reflected in the rates offered to the borrower. Secured business loans with collateral provide lower interest rates than unsecured business loans.

 

What type of property can be used as collateral?

Asset-based financing can be secured with almost any commercial property. When a business seeks for a term loan, traditional lenders may place a lien on commercial real estate, but they rarely utilize personal real estate to secure funding (although they may require a small business owner to sign a personal guarantee). They are possibly guaranteeing all of their own assets, including their own personal real estate, if they sign the personal guarantee). Asset-based lenders, on the other hand, will try to secure loans using the personal home, property, and/or land of the business owner. Lenders willing to make asset-based loans utilizing real estate recognize that the borrower is likely to have a mortgage on their property, thus they are willing to take second positions subordinate to the mortgage lender while still providing financing for up to 65% loan-to-value.

 

What Types of Financing Are Available When Real Estate Is Used as Collateral?

Businesses that want to unlock the equity in their real estate can choose from a variety of financing solutions. There are funding options organized as a term loan, a line of credit, or ACH financing available from big banks to subprime asset based lenders. For a term loan, most traditional bank business lenders will look to use commercial real estate alone as collateral. Alternative asset-based lenders will try to extend lines of credit based on the collateral and the cash flow of the business. Subprime asset-based lenders will typically structure the loan similarly to a merchant cash advance, requiring daily or weekly ACH repayments from the company’s bank accounts. Rates are higher than traditional finance, but because the loan is secured by real estate, asset-based loans with real estate offer lower rates than high-interest cash advances.

 

What are the Fees and Conditions?

The type and quality of collateral used to secure an asset-based loan determines the rate and terms of the loan. Loan-to-value rates for accounts receivables are typically around 80%, whereas inventory and equipment are often around 50%. Even in the second and third slots, asset-based loans involving real estate might have up to a 65% LTV. Rates vary a lot as well. Traditional asset-based lenders have interest rates in the single digits, however subprime asset-based finance companies can have interest rates as high as 20%. Term lengths can range from one to five years, with one to three years being the most common.

 

What is the Procedure for Obtaining an Asset-Backed Loan?

Depending on the lender, the process for obtaining an asset-based loan differs. If you’re searching for traditional asset-based financing, you’ll need to give the following information:

• Application
• 3 years tax returns
• Income Statements for the Past Three Years (including year-to-date)
• balance sheets over the previous three years (including year-to-date)
• A/R and A/P aging schedules
• Schedule of liabilities
• Collateral appraisals

 

You will need to give the following information if you are searching for subprime asset-based loans using commercial real estate or personal land, real estate, or other property:

• Application for a loan
• Statements of account
• BPO collateral and title report

 

The due diligence and underwriting procedure might take anywhere from 1-4 weeks once all paperwork has been submitted to the lenders.

Apply today with G-Force Funding for asset-based loans from $50,000 – $5,000,000.

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Is a Secured Business Loan Right For Your Business?

https://cdn.wallstreetmojo.com/wp-content/uploads/2017/10/secured-loan-vs-unsecured-loan.pngA secured business loan is one that requires some type of collateral. Collateral refers to the assets that a lender uses to ensure that a loan is repaid. If a business defaults on a loan, the lender has the right to seize the collateral in order to recuperate their losses. Real estate and equipment are examples of collateral.

Unsecured loans, on the other hand, do not necessitate any form of security. Unsecured loans have higher interest rates and shorter repayment durations than secured loans because they are riskier for the lender. Secured loans are more appealing to business owners than unsecured loans because they are easier to qualify for if they are willing to put up collateral. They generally have lower interest rates, larger loan amounts, and more flexibility.

 

What is the best way to get a business loan?

You must be able to offer up business or personal assets that can be converted into cash in order to receive a business loan. Here are a few examples of assets that can be used as collateral for a loan:

• Property: Personal real estate, as well as commodities like automobiles, boats, and motorcycles.
• Equipment: Machinery and other equipment that you employ to run your business are examples.
• Savings: Savings account, checking account, or a company loan secured by a certificate of deposit (CD).
• Inventory: Some lenders will let you utilize your existing inventory as collateral. This is often between 60% and 80% of the total worth of the items.
• Invoices: Borrowers can seek an advance on their overdue invoices using invoice factoring. These bills are subsequently put up as security for the loan.
• Investments: Stocks, bonds, and mutual funds are all options.
• Valuables: Jewelry and collectibles are examples of valuables.
• Blanket liens: In the case of a default, a blanket lien permits the lender to sell any asset owned by the company to recuperate their losses.
• Personal guaranty: If your business defaults on a loan, you’ll be personally accountable for repaying it with personal assets if you sign a personal guaranty.

 

Business loans: unsecured vs. secured

Unsecured loans do not require collateral, but secured loans must. As a result, the loan application process and the structure of each form of loan differs.

When you apply for an unsecured loan, the lender will place a greater emphasis on your credit score and repayment history than if you applied for a secured loan. Because unsecured loans aren’t secured, lenders are more likely to provide lower amounts of money and shorter repayment terms. An unsecured loan may require a personal guaranty, which means you are responsible for repaying the debt if the business fails. A lender may also establish a blanket lien on all of your business’s assets, thus making all of your business’s assets collateral.

Even yet, if you have a solid credit score and need money quickly to take advantage of a business opportunity, an unsecured loan may be a suitable option. Because there is no collateral to appraise, the application process for unsecured business loans is usually simpler, which means you could get your money quickly.

 

Secured business loans have a number of advantages

• Easier to qualify for: Offering collateral lowers the lender’s risk, increasing your chances of receiving funding. A secured business loan provides a way to financing and the opportunity to rehabilitate one’s credit score for business owners with bad credit.

• Better terms: The lesser the lender’s risk, the more favorable the terms are likely to be. It’s possible to receive a huge quantity of financing with a long repayment term and a low interest rate if you have quality collateral.

• Flexibility: A secured loan allows you to put up personal assets as collateral to cover beginning costs for a firm that is just getting started.

 

Secured business loans have a number of drawbacks

• Loss of collateral: If you take out a secured business loan, you run the risk of losing the asset you used to secure the loan if you default. This is a risk that all business owners should consider before taking out a secured loan.

• Time to funding: Because the lender must appraise the value of your collateral, a secured loan can take longer to acquire money than an unsecured loan.

 

Secured business loans 6 top options

 

Small Business Administration (SBA)

SBA loans are secured loans from lenders backed by the Small Business Administration of the United States (SBA). You can apply for an SBA loan through a lender that has been approved by the SBA. The Small Business Administration (SBA) provides a Lender Match service that allows you to specify the sort of financing you require and be matched with an SBA lender in your area.

The SBA 7(a) loan is the most popular type of SBA loan. Your loan amount might be up to $5 million, repaid over five to 25 years, with interest rates starting at around 6%, depending on the sort of SBA loan you acquire. To be eligible for an SBA loan, you must show that you have exhausted all other avenues for funding. Typically, SBA loans are secured by assets such as real estate or business equipment.

 

Term loans

Term loans are available from most banks and other lenders. Short-term loans usually have three to 18-month repayment durations and loan amounts ranging from $5,000 to $500,000. Long-term loans can be worth millions of dollars and have repayment durations of up to 20 years.

The criteria for a term loan vary depending on the lender and loan size, but most will look for a good credit score, one to two years of business experience, and robust revenue and cash flow. Business assets such as real estate, equipment, and automobiles can be used to secure a term loan.

 

Equipment Loans

Loans secured by equipment (machines, trucks, etc.) are known as equipment loans. If you default on your loan, the lender will seize and sell the equipment you bought with it to recuperate its losses.

Equipment loans are available from a number of online lenders. The loan amounts start at $5,000 and can go up to $1 million. You must meet your lender’s credit score, time in business, and revenue standards to qualify. The repayment period is usually three to seven years.

 

Invoice factoring

By selling outstanding bills to a factoring provider, your business can gain access to funds held in unpaid invoices. The factoring provider then advances a portion of the unpaid invoices (usually 70% to 90%).

The invoice acts as collateral for the loan in invoice factoring. You can apply for invoice factoring online with a number of different alternative lenders. The loan amount can be as high as $5 million. As invoices are paid, loans are repaid. Some factoring companies charge a one-time flat cost per invoice, while others charge a fee that rises in proportion to the length of time the invoice has been unpaid. You must meet the lender’s credit score, time in business, and revenue standards to qualify.

 

Business line of credit

A business line of credit allows you to borrow a specified amount of money from a lender. The line of credit is revolving, so once you’ve paid it off, you’ll be able to use the same money again. Furthermore, you only pay interest on the amount of money you spend (average APRs for business lines of credit can range from 8% to 80% or more).

Banks and online lenders both provide business lines of credit, which typically have credit limits ranging from $1,000 to $100,000. You must put up business assets as collateral for a secured business line of credit, such as commercial real estate. To be considered, you must have a minimum credit score of 500 and six months to two years of business experience.

 

Inventory financing

Inventory financing allows you to secure a loan by using your current inventory as collateral. Many online lenders, such as BlueVine, OnDeck, and Headway Capital, offer inventory financing. The loan levels for inventory financing range from $1,000 to $250,000. The majority of lenders will charge interest on a weekly or monthly basis.

A personal credit score of at least 550 is required to qualify. Lenders will also want to examine at least six months’ worth of financial records. Typical loan periods range from three to 18 months.

 

Frequently Asked Questions about Secured Business Loans

• What is the definition of a secured business loan?

A secured business loan is one that necessitates some type of security. If the business fails to repay the debt, the lender has the right to seize those assets as collateral.

• What are secured business loans and how do they work?

Secured business loans provide funding depending on the value of the collateral you put up. The lender will assess the value of your collateral and provide loans based on that value. Once you’ve received funding, you’ll have to repay it according to the conditions of your loan arrangement.

• What kind of assets qualify as collateral for a business loan?

Lenders will accept a wide range of assets as collateral. Commercial real estate, business equipment and machinery, inventory, invoices, blanket liens, and personal guarantees are all kinds of collateral.

• Is it easier to receive a secured loan?

Secured loans are often easier to qualify for than unsecured loans because they are backed by assets. This lowers the lender’s risk, so they may be more inclined to lend you money even if you have bad credit or low monthly income.

Apply today with G-Force Funding for a secured loan from $50,000 – $1,000,000.

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How to Get a Small Business Loan Right Now

Knowing these 5 steps to getting a small business loan can minimize frustration and increase your chances of approval.

Find Out If You’re Eligible for a Business Loan

To see if you qualify for a small business loan, answer the following questions:

How is your FICO score?

Each of the three major credit agencies, Equifax, Experian, and TransUnion, will provide you with your credit report for free. Several credit card providers and personal finance websites will also give you your credit score free of charge.

Banks prefer to offer low-rate business loans to clients with credit scores of at least 680. Consider small-business loans for borrowers with lower credit or loans from a nonprofit, microlender if your credit score falls below that score.

How Long Have You Been in Business?

Most online small business loans require at least one year of business experience, whereas most bank loans require at least two years.

Do you have a sufficient income?

Many lenders require a minimum amount of annual income, which might range from $10,000 to $250,000. Before you apply, calculate your income and learn out what the minimal requirements are for each lender.

Are you able to make the payments?

Examine your company’s financials, particularly cash flow, and determine how much you can afford to put into loan repayments each month.

Do you have collateral?

Many lenders offer both secured and unsecured business loans. A secured loan necessitates the use of collateral, such as property or equipment, which the lender can seize if you default on the loan.

Putting up collateral is hazardous, but it can increase the amount you can borrow from lenders and help you receive a better interest rate.

Even for unsecured loans, lenders may require a personal guarantee. This implies you’ll personally repay the loan if your company can’t, and you may allow a lender to seize your home or car if you don’t pay.

Determine The Type of Loan You Require

Lenders will inquire as to why you require a small-business loan. Your response will most likely fall into one of three categories, which will help you decide which sort of business loan is best for you:

• You want to start a business: Many lenders want to see cash-flow to support loan repayment, thus businesses in their first year are unlikely to be approved for a loan. You’ll sometimes have to rely on alternative sources of beginning funding, such as business credit cards and personal loans.
• You want to keep track of your day-to-day spending: A business line of credit can be a good idea. This type of flexible financing allows you to access funds as needed to cover obligations such as payroll or unexpected costs such as repairs, providing a handy safety net when needed.
• You wish to grow your business: Consider a government-backed SBA loan or a regular term loan, both of which often have larger borrowing limits – SBA loans, for example, can reach $5.5 million. Many lenders also have solutions tailored to the demands of a developing business, such as loans for equipment or vehicle purchases.

Shop Around for Small-Business Lenders

Small-business loans can be obtained from three different sources: banks, online lenders, and nonprofit microlenders. Each usually has several good options, but one may be superior to the others under particular situations.

When to use internet lenders for a business loan:

• You’re short on cash
• You’re short on time
• You have an opportunity too good to resist

Small-business loans and lines of credit ranging from $1,000 to $5 million are available from online lenders. Depending on the lender, the kind and size of the loan, the length of the repayment term, the borrower’s credit history, and if collateral is necessary, the average annual percentage rate on these loans ranges from 6% to 99 percent.

These lenders’ APRs are rarely as low as those offered by traditional banks, but approval rates are higher and funding is faster— as fast as 12 hours— than with banks.

When to seek a bank loan for a business:

• You’ve had your company for at least two years
• You have excellent credit
• You don’t require immediate cash

Term loans, lines of credit, and business mortgages are all traditional bank choices for purchasing or refinancing properties.

The United States of America operates through banks. The Small Business Administration’s 7(a) lending program offers standard small-business loans, as well as short-term microloans and disaster loans. According to the Congressional Research Service, the SBA offers loans up to $5.5 million, with 7(a) loans averaging $533,075 in fiscal year 2020. 

Due to considerations such as reduced sales volume and cash reserves, obtaining a small-business loan from a bank might be difficult. When you add in low personal credit or a lack of collateral, many small-business owners are left holding the bag. Although being funded takes longer than alternative choices, banks normally provide the lowest APR.

When to approach microlenders for a business loan:

• You have a poor credit history or none at all
• You’re a brand-new company
• You won’t be able to obtain a typical loan

Microlenders are non-profit organizations that specialize in making small loans of less than $50,000. The APR on these loans is usually greater than on bank loans. The application process can be lengthy if it requires a detailed business plan, financial statements, and a description of how the loan will be used.

Also, because the loans are defined as “micro,” they may be suitable for smaller businesses or startups that are unable to obtain typical bank loans due to a lack of collateral, a lack of operating history, or a lack of personal credit.

Microlenders include Accion, Opportunity Fund, Kiva, and Accompany Capital, to name a few.

Get Your Documents Together

Make sure you have all of the necessary documents before applying. The process of obtaining a small-business loan will be streamlined if these files can be located and made easily accessible now.

You’ll need to provide a combination of the following, depending on the lender:

• Tax returns for both businesses and individuals
• Bank statements for both your business and personal accounts
• Financial statements for a business
• Legal documents for your business (e.g., franchise agreement, articles of incorporation, commercial lease)
• Your business plan

Apply!

You’ve done it! Now that you’ve decided which type of loan and lender are best for you, it’s time to apply. 

Begin by comparing two or three comparable loan possibilities based on loan conditions and annual percentage rate, or APR. APR is the easiest way to comprehend the overall cost of a company loan for the year because it includes all loan expenses in addition to the interest rate.

Choose the loan with the lowest APR among those you qualify for (as long as you can afford the loan’s regular payments) and apply with the documentation you’ve acquired.

It’s worth noting that credit bureaus make no distinction between business and personal inquiries. When applying for a small business loan, your credit score may be damaged if you utilize your personal credit history, which is why it’s crucial to go with your best option.

Apply today with G-Force Funding for business loans from $10,000 – $500,000.

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Best Business Line of Credit Options Right Now

For short-term finance needs, online lenders provide business lines of credit up to $250,000.

A business line of credit can help you manage cash flow, purchase inventory, or pay for an unforeseen expense.

A business line of credit is a form of small-business financing that gives you more options than a traditional loan. Owners of small businesses can borrow as much as they need up to their credit limit, which can range from $1,000 to $250,000. Furthermore, business lines of credit with lesser credit limits are frequently unsecured, requiring no collateral such as real estate or inventory.

 

Our selection for

Lines of credit for businesses up to $100,000

For short-term finance needs, OnDeck offers business lines of credit up to $100,000.

 

OnDeck – Line of credit

OnDeck offers a fast line of credit for small-business owners with less-than-stellar credit who need to manage cash flow or buy inventory.

EST. APR – 11.00 – 61.90% 

MIN. CREDIT SCORE – 600

 

Qualifications:

A minimum credit score of 600 is required.

1 year in business is the minimum requirement.

A minimum of $100,000 in annual income is required.

There have been no bankruptcies in the last two years.

 

Pros

• On the same business day, cash may be accessible.
• Minimum credit score is required.
• There is less paperwork than with most other lenders.

 

Cons

• Early repayment will not save interest due to the fixed-fee structure.
• Weekly payments are required.
• Personal guarantee is required.

 

Our selection for

Business credit lines of up to $250,000 are available.

The line of credit offered by BlueVine provides quick working cash for short-term financing needs.

 

BlueVine – Line of credit

EST. APR – 15.00 – 78.00% 

MIN. CREDIT SCORE – 600

 

Qualifications:

6-month credit line:

A minimum credit score of 600 is required.

6 months in business

$120,000 in annual income.

 

12-month credit line:

A minimum credit score of 600 is required.

6 months in business.

$120,000 in annual income.

 

Pros

• Cash can be obtained in as little as 12 to 24 hours.
• Various term lengths are available to meet a variety of funding requirements.

Cons

• Payment amounts are larger when the payback term is short.
• Personal guarantee is required.
• North Dakota, South Dakota, and Vermont are the only states where this product is not accessible.

 

What is a business line of credit and how does it work?

A credit line functions similarly to a credit card. With a line of credit, you can take out money when you need it and pay it back over time. You can use and repay your line of credit as many times as you want as long as you make timely payments and don’t go over your credit limit. You only pay interest on the amount you borrow, and most lenders allow you to pay off your entire sum early to avoid paying interest.

 

A business line of credit differs from a term loan, which offers a one-time lump sum of money that must be returned over a set length of time, or term. Borrowing limitations on lines of credit are often lower than those on term loans, ranging from $1,000 to $250,000.

 

How can I receive a business line of credit?

To qualify for a business line of credit, you’ll need at least six months in operation and $25,000 in yearly revenue. Although not all lenders have a minimum credit score requirement, borrowers will almost certainly need a score of 500 or above to be considered.

 

Traditional lenders, like banks, as well as internet lenders like OnDeck and BlueVine, offer business lines of credit. Interest rates and borrowing limitations vary a lot based on the lender’s requirements and the borrower’s situation.

Lenders often want personal and business tax returns, bank account details, and business financial documents, such as profit-and-loss statements and a balance sheet, when you apply for a business line of credit.

To qualify for a line of credit, most traditional lenders require a high level of revenue and a long track record. Larger lines of credit may need collateral, which the lender can seize if you don’t pay on time. Similarly, SBA lines of credit have strict requirements.

Qualification standards for online lenders are often less strict than those for banks. These lenders, on the other hand, are more likely to charge higher rates and have fewer credit limits than banks.

Lenders may be able to grant business lines of credit in as little as a few days after receiving approval. New credit lines are typically put up more slowly by banks than by online lenders.

 

What’s the difference between a secured and an unsecured business line of credit?

A secured business line of credit requires you to put up assets as collateral, such as inventory or property. A lender may seize your assets if you do not repay the credit line.

Although no collateral is required to obtain an unsecured business credit line, certain lenders may nevertheless want a personal guarantee or a claim on a business’ assets.

If you default on a loan, a personal guarantee provides a lender the power to seize your personal assets, such as your home. A lien is similar; if you don’t pay back a loan, a lender might seize your business’ assets.

When researching lenders, find out if they want collateral, a personal guarantee, or a lien so you can choose the best option for your business.

 

Business credit cards vs. business credit lines

Business credit cards are also lines of credit, but they differ in several ways from regular business lines of credit.

When you make a draw on a business line of credit, you get a greater credit limit, which can be secured by collateral, and you get actual cash in your bank account. You can get cash with a company credit card, but you’ll have to pay fees and have a higher APR. Annual fees and late-payment fees are two other prevalent expenses for business credit cards.

Smaller ongoing expenses and newer businesses without established finances are best served by business credit cards, whereas bigger ongoing expenses and more experienced businesses are best served by a business line of credit.

Business credit cards, like personal credit cards, can offer incentives or cash back for transactions. Typically, rewards are tied to business expenses like office supplies, gas, internet, and cable. They may also run 0% interest deals, in which you pay no interest on your balance for a set amount of time after you sign up for the card.

 

Frequently Asked Questions

 

When is it a good idea to use a business line of credit?

When you need to finance short-term obligations like replacing inventory or covering unforeseen costs, a business line of credit is the ideal option. Large one-time expenses, such as the acquisition of equipment, are financed using a small-business term loan.

 

What is the best type of lender for a business line of credit?

Business lines of credit are available through online lenders, banks, and credit unions. To qualify for a loan, banks and credit unions often require a substantial amount of revenue and at least a few years of experience. Online lenders have fewer requirements, but they may demand higher interest rates. Compare your options to see which one best suits your financing needs.

 

Is obtaining a company line of credit difficult?

Obtaining a small-business line of credit can be tough for newer businesses. To get any form of financing, traditional lenders, such as banks, often demand businesses to have several years of operations, revenue, and excellent financials.

Apply today with G-Force Funding for business lines of credit from $20,000 – $250,000.

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What Are Secured Business Loans and How Do They Work?

What Are Secured Business Loans and How Do They Work?

Secured business loans, also known as collateralized loans, are a type of small business loan that is backed by a personal guarantee or a valued asset. If you don’t pay back your business loan, the lender can legally reclaim their losses by using collateralized assets or a personal guarantee.

In the end, secured business loans will provide you with a better loan offer—lower interest rates and longer periods. In some ways, you’re providing the lender with reassurance—they’ll receive their money back one way or another.

 

Is a secured loan appropriate for your business? We’re here to assist you in finding out.

 

We’ll go over everything you need to know about secured business loans in this article, including how they work, what sorts of secured loans are available, and how to apply for the best ones.

 

What Are Secured Business Loans and How Do They Work?

As previously stated, secured business loans require some form of collateral (i.e., whatever your business has that can be converted to cash) in order to be approved.

 

Although secured loans can take numerous forms, as we’ll see below, they’re usually structured as business term loans. In this situation, you obtain a lump sum of capital from a lender and repay it over a predetermined length of time, with interest.

 

However, when it comes down to it, the majority of business loans are secured in some form.

 

After all, lending to small businesses is a dangerous activity from the lender’s standpoint, especially when working with startups or businesses with bad credit.

 

Secured loans, on the other hand, reduce some of this risk by granting the lender the ability to seize and liquidate certain assets (the collateral used to secure the loan) if you fail.

 

Business Loans: Secured vs. Unsecured

With this knowledge, you might be wondering what the difference is between secured and unsecured loans.

 

In other words, unsecured business loans do not need you to put up collateral in order to obtain funding.

 

However, the phrase “unsecured” can be deceptive in this context. Although unsecured loans do not require you to provide collateral or physical assets, the lender will limit their risk by seeking a personal guarantee or obtaining a UCC-lien on your business.

 

Furthermore, unsecured loans frequently have higher interest rates than secured business loans, owing to the fact that secured loans provide the lender with more security, allowing them to offer you funds at cheaper rates.

 

Learn more about unsecured business loans with our guide.

 

How to Get a Business Loan in 7 Easy Steps

As previously said, collateral (in some form) is essential for secured business loans because it reduces the lender’s risk and makes them more inclined to provide the funds you require.

 

So, how do you go about getting a business loan? Here are seven possibilities:

• PROPERTY – When applying for a secured business loan, you may be required to put up real estate assets or home equity as collateral. Borrowers most commonly employ this form of collateral. 

When you put your house or real estate holdings up as collateral for a business loan, you’re giving the lender authority to seize these assets if you default.

 

Property, on the other hand, doesn’t really relate to physical properties. Equipment, vehicles, motorcycles, boats, and other items can also be used as collateral on a business loan.

• SAVINGS

These secured business loans, also known as “cash-secured loans” or “passbook loans,” use the cash in your bank as collateral for the loan.

 

If you default on your loan, your lender may be able to seize your savings account to recuperate their losses.

 

Furthermore, from the standpoint of a lender, this is one of the best sorts of collateral. After all, it’s a low-risk situation for them—if you default on your business loan, they’ll get their money back right away.

 

They also won’t have to deal with the difficulty of selling a real item like a house, equipment, or a car.

• INVOICES

Many small business owners have customers who do not pay their invoices on time, causing cash flow problems.

 

Those unpaid bills represent income for your business in this situation, and they can also be used as collateral for loans.

 

Through a procedure known as invoice financing, many lenders agree to take collateral based on unpaid bills.

• INVENTORY

You can use your inventory as collateral for a loan if you require business funding to buy inventory.

 

Similar to invoice finance, inventory financing uses your inventory as collateral in case you can’t sell your products and end up defaulting on the loan.

• EQUIPMENT

Although equipment can be used to secure a loan as a sort of property, it can also be used to secure a loan in a different way.

 

If you’re trying to finance the acquisition of new or used equipment, you can use the equipment as collateral on the loan, just like you can with invoice and inventory financing.

• BLANKET LIENS

A lien, unlike the other types of collateral we’ve discussed thus far, is a legal claim linked to a business loan that allows the lender to seize and sell the business’s assets in the event of failure.

 

A blanket lien, as the name implies, is the most extensive lien—and the best for the lender. Blanket liens allow lenders to seize whatever asset or form of collateral a business holds in order to recoup their losses.

 

Having said that, while a blanket lien may be utilized as an additional security measure on a loan backed by physical collateral, it’s also routinely used by lenders to lessen the risk of an otherwise unsecured business loan.

• PERSONAL GUARANTEE

A personal guarantee, like a blanket lien, is a sort of security mechanism used to support a loan.

To sum it up, a personal guarantee is an arrangement between you and your lender that puts your personal assets on the line, thereby making you a co-signer on the loan.

As a result, if your business fails on the loan and is unable to repay it, you are personally liable for repayment.

 

Creditors can seize your personal assets, such as your home, investment accounts, and other valuables, as repayment.

 

Personal guarantees, like blanket liens, are frequently utilized to “secure” business loans that aren’t backed by tangible assets.

 

You may also be needed to put up collateral and sign a personal guarantee, depending on the lender and the type of loan.

 

The Different Types of Secured Business Loans

Let’s look at the many sorts of secured business loan choices now that you know what can be utilized to secure a loan.

 

Let’s be clear: practically all business loans are secured in some form. As a result, reading over your business loan agreement before signing and completing the closing process is even more important.

 

Even if you are not required to provide collateral, the lender may place a lien on your business or need a personal guarantee for the loan.

 

With that in mind, below are some of the most prevalent types of secured business loans.

 

Traditional Term Loans

Traditional term loans, also known as medium-term loans, are the most frequent secured small business loans, as we briefly described above.

 

Although traditional term loans are available from online lenders, you should first apply with a bank to get the best rates and terms.

 

If you apply for this type of loan through a bank, you will almost certainly be asked to provide collateral to secure the loan. The type and amount of collateral you’ll require depends on the bank you’re working with, your credit score, and the amount of financing you’re seeking.

 

However, you should be prepared to submit your real estate holdings, vehicles, equipment, savings, and other assets as collateral for these secured business loans in the majority of circumstances.

 

Fast Facts on Term Loans

Do you believe a standard term loan is the best secured business loan for you?

 

The following are some quick facts about various types of company loans:

 

Amounts of Term Loans

 

• Traditional term loans typically range in size from $25,000 to $500,000.

 

Term Loan Conditions

 

• Traditional term loans typically have maturities ranging from one to five years, though this varies by lender.

Rates on Long-Term Loans

 

• Traditional term loans are a cost-effective borrowing option, with interest rates ranging from roughly 5% to 25%.

 

Learn more about business term loans with our guide.

 

SBA LOANS

SBA loans are yet another excellent secured business lending alternative. The Small Business Administration (SBA) offers term loans through three of its most popular loan programs: 7(a) loans, CDC/504 loans, and microloans.

 

SBA loans aren’t actually issued by the SBA, despite their name. Instead, they’re issued by lending partners like banks and credit unions and are partially insured by the SBA.

 

Lenders are encouraged to assist small businesses because the SBA acts as a guarantor of these loans. It’s a win-win situation for both the business owner and the lender in the end. Because lenders are willing to take on less risk, you may be able to obtain a larger and less expensive business loan than you would otherwise be eligible for.

 

However, like other term loans, every SBA loan will require some form of collateral, whether it’s actual assets or a personal guarantee from an SBA lender.

 

Quick Facts on SBA Loans

SBA loans are one of the most popular financing options for small business owners.

 

Here are some quick facts about Small Business Administration loans.

 

• The 7(a) loan program, which is the most popular SBA lending program, allows for loan sums of up to $5 million.
• An SBA loan can range from five to 25 years in length, depending on the loan program you’re working with.
• Although your rate is negotiated between you and your SBA lender, depending on whatever loan program you choose, you may expect an interest rate of from 4% to 13%.

 

In our guide, you’ll learn more about the various SBA loan programs and how they work.

 

BUSINESS LINES OF CREDIT

When evaluating different types of secured business loans, business lines of credit should be considered as a financing alternative.

 

A line of credit is similar to a business credit card in that it provides you with access to a pool of funds from which you can draw whenever you need or desire. You’ll only pay interest on the money you use, and your line of credit will be refilled to its original amount once you’ve paid back the lender.

 

When it comes to credit lines, you can choose between unsecured and secured options. Alternative lenders can provide unsecured business lines of credit up to $100,000; however, the APRs on these products are quite high.

 

Secured business lines of credit, on the other hand, enable borrowers with lower income and credit ratings to obtain bigger loan limits at cheaper interest rates. Lines of credit can be excellent secured business loans for startups in this way.

 

Fast Facts about Business Lines of Credit

A business line of credit can be a good alternative if you need flexible funding with a secured business loan.

 

Here are some quick facts:

 

• Credit lines might be anything from $10,000 to $1 million.
• They Don’t have “terms,” they do have payback schedules that are established once you draw on the line. This timeline will vary depending on your credit line lender, but a business line of credit repayment period typically ranges from six months to five years.
• With a business line of credit, you only pay interest on the money you take out of it. Depending on your eligibility, these rates can run anywhere from 7% to 25%.

 

Learn more about secured business lines of credit with our guide.

 

EQUIPMENT FINANCING

 

If you’re seeking for capital to buy equipment, as we discussed earlier, you can check into equipment financing.

 

Equipment financing is a sort of self-securing business loan in which the loan is secured by the equipment itself. Because equipment financing is self-collateralizing, businesses that don’t have other types of collateral to offer can still get the money they need.

 

Furthermore, equipment finance providers are frequently eager to engage with newer businesses and business owners with poor credit. In this approach, one of the greatest types of secured business loans for bad credit and startups is equipment financing.

 

Fast Facts on Equipment Financing

Overall, equipment loans are short-term secured business loans that work similarly to a consumer car loan.

 

Here’s what you should be aware of:

 

• The loan amount is determined by the type of equipment, its price, and whether it is new or old, although it can be up to 100% of the equipment’s value.
• Equipment loans usually have terms that last for the expected lifetime of the equipment. As a result, the terms are often five or six years long.
• Interest rates range from 4% to 40%, with rates on the higher end of the spectrum more likely for startups and businesses with bad credit.

 

Learn more about equipment finance with our guide.

 

INVOICE FINANCING

 

Invoice financing (also known as accounts receivable financing) is a sort of self-securing funding similar to equipment financing that is appropriate for businesses who do not have additional collateral to offer.

 

You don’t have to put up any of your personal assets as collateral for an invoice financing loan because your outstanding invoices act as collateral.

 

Furthermore, because invoice financing providers typically consider your customers’ payment history in addition to more traditional qualifications, this form of borrowing can be significantly easier to obtain—making it a wonderful alternative for businesses with less-qualified credit.

 

Fast Facts about Invoice Financing

Invoice financing addresses a typical and frustrating problem for small business owners: you’re waiting for customers to pay your outstanding invoices, and your cash flow is suffering as a result.

 

Here are some quick facts:

 

• Typically, invoice financing companies will advance up to 85% of the amount of your outstanding bills, with the remaining 15% held in reserve.
• Invoice financing, like a business line of credit, does not have traditional “terms.” Instead, the timing of receiving the remaining 15% held in reserve by the financing company is determined by when your customers pay their invoices.
• A 3% processing fee and a 1%  “factor fee” for each week it takes your customers to pay their invoices will normally be deducted from the 15% held in reserve by the lender. After your customers pay, you’ll receive the remaining 15%, minus costs.

 

Learn more about invoice financing with our guide.

 

INVENTORY FINANCING

 

Finally, inventory financing is one of the last sorts of secured business loans. Inventory financing, like invoice and equipment financing, is a self-securing loan.

 

However, inventory financing can come in a variety of forms, including a medium-term loan, a line of credit, or a short-term loan, but they all serve the same purpose: you’re given money to buy inventory.

 

Then, of course, you repay the lender over time, plus interest, using the inventory as collateral for the loan.

 

Inventory financing is a good option for entrepreneurs that don’t want to risk their personal assets. But there’s a catch: if you can’t sell your inventory for enough money to pay off your loan, the lender isn’t likely to be able to either. As a result, lenders may be unwilling to provide these collateralized inventory-based secured business loans.

 

As previously stated, inventory financing can take numerous forms. What you should know about this form of secured business loan is as follows:

 

You might not always be able to acquire a loan that is equal to the total liquidation value of your inventory, just like you might not be able to get a loan that is equal to the total liquidation value of your commercial real estate. Instead, a lender can provide you 50% to 80% of the value of the inventory.

 

You’ll find a variety of term lengths because inventory financing can take many different forms. However, because the goal is to sell the inventory you buy as soon as possible, a period of more than three years is unusual.

 

Interest rates vary widely depending on the type of financing, the lender, and, of course, the qualities of your business. In general, rates will likely range from 8% to 10%. Higher rates are more likely to be seen for short-term, quicker products. Higher rates are also more likely to be faced by newer businesses and those with bad credit.

 

Learn more about inventory financing with our guide.

 

Best Secured Business Loan Lenders

 

When it comes down to it, a few financing choices, such as merchant cash advances, don’t require any form of guarantee or collateral. Although unsecured business loans such as these exist, you must weigh the benefits and drawbacks.

 

Lenders will charge high interest rates on unsecured business loans since they don’t know if they’ll be able to reclaim their money if you default.

 

Even if you’re scared to put your assets on the line, being a responsible borrower—only taking on debt you think you can handle, paying on time and in full, and communicating with your lender about any issues—is the greatest way to protect yourself from losing them.

 

As a result, here are some top lenders to consider if you’re seeking the best secured loan for your business.

• WELLS FARGO

 

The best option for bank lending.

 

Wells Fargo is one of the most small-business-friendly banks available.

 

Business lines of credit, SBA loans, and commercial real estate financing are all available through Wells Fargo.

 

Get more information on Wells Fargo business financing.

• ONDECK CAPITAL

 

Short-term loans and lines of credit work well.

 

OnDeck, an online lender, is a popular choice for both short-term loans and lines of credit.

 

Their loan amounts range from $5,000 to $500,000, with a maximum period of three years. You’ll be able to borrow up to $100,000 with a one-year term on lines of credit.

 

To be eligible for OnDeck funding, you must meet the following criteria:

 

• A minimum of $100,000 in annual sales
• At least one year of experience in the field
• OnDeck can approve applications as soon as the same day if you have a personal FICO score of at least 600. 

 

These short-term secured business loans, on the other hand, will have higher interest rates than bank loans or other longer-term options. Typically, the rates vary from 9.99% to 99%.

• BLUE VINE

 

Invoice financing is the best option.

 

BlueVine is a leading lender to consider if you need invoice financing.

 

Depending on the size of your unpaid invoices, this funding option with BlueVine can go up to $5 million.

 

BlueVine will provide you 85% to 90% of the amount of your invoice up front, and the rest when your customer pays it.

 

BlueVine accepts applications from businesses that have been in operation for at least three months, have a personal credit score of 530 or higher, and have annual revenues of $100,000 or more.

 

Frequently Asked Questions

• Is it easier to receive a secured business loan?

In general, secured loans are easier to obtain because providing sufficient collateral on a loan increases your chances of being authorized by a lender. After all, the more collateral you can provide, the lower the risk for the lender to give money to your business.

 

Secured loans are also significantly easier to obtain for businesses with bad credit or no track record. In fact, these businesses will find it exceedingly difficult to obtain cash without securing their loan in some way.

 

Learn more about the simplest business loans in our guide.

• What is the average time it takes to acquire a secured business loan?

The time it takes to acquire a secured business loan and get funds is highly dependent on the type of loan and the lender.

 

Secured business loans from online, alternative lenders will be the quickest in general, with some lenders funding in as little as one day. SBA and bank loans, on the other hand, will take much longer to finance, ranging from a week to several months.

 

To that end, if you want to speed up the loan procedure, you should supply all essential information—including collateral details—up front, as well as promptly and completely answer any extra inquiries from the lender.

• What does it indicate when a loan is secured by all of a business’s assets?

A loan secured with all business assets is exactly what it sounds like: you’ve utilized all of your business’s assets to secure financing.

 

Most lenders, on the other hand, will not demand you to put up all of your physical business assets to secure a loan, hence this phrase may be more correctly used to loans secured by a blanket lien (or even a personal guarantee).

 

By issuing a lender a blanket lien, you are giving them the legal ability to seize all of your business’s assets in order to recuperate their losses if you default on the loan.

• As a startup, can I acquire a secured business loan?

Secured business loans are available to startups in a variety of forms. In fact, a business will find it far easier to obtain funding through a secured loan rather than an unsecured loan.

 

To this point, self-securing business loans—equipment financing, inventory financing, and inventory financing—are particularly attractive to startups who lack the physical assets or money to use as collateral for other loan products.

 

Learn more about no-collateral startup business loans with our guide.

• Is it possible to acquire a secured business loan if I have bad credit?

Yes, secured business loans are available to businesses with bad credit. If your business has bad credit, though, your loan alternatives may be limited, and you’ll almost certainly pay higher interest rates than businesses with good credit.

 

Businesses with bad credit, on the other hand, will find it difficult to obtain unsecured business loans, as lenders will want to limit their risk by requiring some form (or numerous forms) of collateral.

 

Businesses with bad credit, like newer businesses, may resort to self-secured business loans as their first choice, as the self-collateralizing nature of these products makes them easier to qualify for.

 

Learn more about the best bad credit business loans with our guide.

 

Final Thoughts

At the end of the day, if you’re searching for funding, you’ll almost certainly be evaluating your secured business loan choices.

 

While an SBA or traditional term loan is the best option because of the long periods and low interest rates, they can be slow to finance and difficult to qualify for.

 

As a result, businesses in need of quick cash, as well as startups and those with bad credit, should choose lines of credit or self-securing financing, such as invoicing, inventory, and equipment financing.

 

Finally, keep in mind that the best secured loan for your business is not only one that you qualify for, but one that you can truly afford.

 

To this point, before agreeing to any form of financing, make sure you understand the exact cost of the debt and that you’ll be able to stick to the payment schedule—that way, you won’t lose any of the collateral you’ve put up.

Apply today with G-Force Funding for a secured loan from $50,000 – $1,000,000.

 

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What Are SBA Loans and How Do You Get One?

An SBA loan is a small-business loan that is partly guaranteed by the government and issued by banks and internet lenders.

 

SBA loans are small-business loans that are granted by participating lenders, usually banks, and are partially insured by the US Small Business Administration.

SBA loans have stringent lending requirements, but their flexible terms and low interest rates make them one of the most effective ways to fund a business. Here’s everything you need to know about SBA loans and how to improve your chances of getting approved.

 

What is an SBA loan?

An SBA loan is a sort of government small-business loan that is backed by the federal government but funded by lending institutions. The Small Business Administration (SBA) offers many loan programs, including 7(a) loans, 504 loans, and microloans (more on these below).

 

An SBA loan is obtained through a lending institution such as a bank or credit union. The lender then applies to the SBA for a loan guarantee, which means the government will pay the lender the guaranteed amount if you default on an SBA loan.

 

Everyone with at least 20% ownership in a corporation must provide an unqualified personal guarantee as business collateral, according to the SBA. If your business fails to make payments, this guarantee holds you and your personal assets liable.

 

Changes to SBA loans that are only temporary

Some SBA loan features have been temporarily altered as part of the current coronavirus relief package to promote lending and assist borrowers.

 

The following amendments took effect on Feb. 1 and are in addition to other small business relief programs such as the PPP (Paycheck Protection Program) and EIDL (Economic Injury Disaster Loans):

 

• Loan limitations have been raised. The borrowing limit for SBA Express loans has been increased from $350,000 to $1 million as of Jan. 1, 2021. On Oct. 1, 2021, the maximum amount will be permanently reduced to $500,000.
• Fees have been waived. The SBA will waive costs for both lenders and borrowers on 7(a) and 504 loans.
• Guarantees on loans have been increased. The SBA will guarantee 90% of 7(a) loans and 75 percent of SBA Express loans of greater than $350,000 through Oct. 1, 2021. For loans up to $150,000, the maximum SBA guarantee is normally 85%, 75%for loans beyond $150,000, and 50% for Express loans.
• Payments are taken care of. On qualified SBA loans, the government will make monthly payments of up to $9,000 per month. When your loan was accepted, issued, or disbursed, the number of payments you can get will be determined.

 

How many payments will you be able to cover?

On February 16, 2021, the SBA updated its guidelines on payment relief alternatives for qualified 7(a) and 504 loans:

 

• For loans granted before March 27, 2020: two months will be paid, with an additional three months possible for those in certain industries hit hardest by the epidemic.
• Three months paid for loans approved between March 27 and September 27, 2020, and disbursed on or after September 28, 2020.
• The SBA will cover six months of payments for loans approved between March 27 and September 27, 2020, and completely disbursed by September 27, 2020.
• Three payments are covered for loans granted between February 1 and September 30, 2021.

 

Payments are contingent on money being available, thus the number of people covered may fluctuate in the future.

Types of SBA loans

There are multiple types of SBA loans —  each with its own set of terms and restrictions. The best SBA loan for you will be determined by your intended use of the funds.

 

Program	Loan size	Purpose
SBA export working capital loans	Up to $5 million	Cash to support export sales.
SBA export express loans	Up to $500,000	Expedited funding to help a business grow its exports.
SBA international trade loans	Up to $5 million	Long-term finance to increase export sales or modernize in order to compete against foreign competitors
SBA 7(a) loans	Up to $5 million	Equipment purchases, working capital and expansion
SBA Express loans	Up to $500,000 (Updated on Oct. 1, 2021)	Working capital, expansion, and real estate and equipment purchases fast funding.
SBA 504 loans	Up to $5.5 million	For long-term fixed assets, such as land, machinery, and infrastructure.
SBA microloans	Up to $50,000	For inventory, supplies, equipment, machinery and working capital.
SBA disaster loans	Up to $2 million	Repair physical damage as a result of a declared disaster, as well as cover running costs.
SBA Community Advantage loans	Up to $250,000	It can only be used for normal business operations; It cannot be used for revolving credit

 

Veterans can also get help from the SBA through small-business grants and lending programs.

 

SBA LOAN ADVANTAGES

 

Competitive rates

Participating lenders must base SBA loan interest rates on the prime rate plus a markup rate known as the spread, according to federal regulations.

 

The annual percentage rate (APR) of a loan is not the same as the interest rate. In addition to the interest rate, the APR is a percentage that incorporates all loan expenses.

 

APRs differ significantly between SBA and non-SBA lenders. An online lender that specialized in SBA loans, for example, may have an APR of around 10%, but large online small-business lenders that don’t offer SBA loans have APRs as high as 99%.

 

Low fees

Typically fees for SBA loans consist of a guarantee fee depending on the loan amount and maturity, as well as a monthly service fee based on the guaranteed percentage of the outstanding debt. Every year, the SBA reviews its charge structure.

 

Fees on SBA loans are currently being waived.

 

Longer terms

Another advantage of SBA loans is that you have more time to repay them, which means you’ll have more money to spend on other aspects of your business. The length of the loan will be determined by how you intend to use the funds. The following are the current maximum maturities:

• The term of a working capital or inventory loan is ten years.
• Equipment is ten years old.
• 25 years in real estate.

 

How to get an SBA Loan

 

1. Check to see if your company qualifies.

Lenders prefer to see at least two years in operation, significant yearly income, and a good credit score, which starts around 690, to qualify for an SBA loan.

 

An SBA loan is generally out of the question if your business is failing. You shouldn’t apply if it falls within one of the ineligible groups, such as charitable or religious organizations.

 

2. Gather all of your application materials.

If you believe you qualify, the SBA website, which contains a loan application checklist, is the best place to start. This is where you’ll assemble all of your materials, including your resume.

 

Before you apply, you’ll need the following documents:

 

• Borrower information form from the Small Business Administration.

• Personal history statement
• Personal income tax returns.
• Personal financial statement.
• Business tax returns.
• And a business license is required.
• If applicable, a lease agreement.
• A one-year cash flow forecast is provided.

 

3. Select a lender

The Small Business Administration (SBA) provides a handy Lender Match tool that matches potential borrowers with lenders within two days.

 

If you’re going through a typical bank, it’s best to go with one that has experience with SBA loans. These are some questions to ask a potential lender:

• What percentage of your loans are SBA-backed?
• How often do you get SBA loans?
• How experienced is your team with the process?
• What is the range of the loans you make in terms of dollar amounts?

 

In general, a bank with extensive SBA expertise will be able to better advise you, including estimating your chances of approval. Banks will follow SBA standards while evaluating loan applications using their own underwriting procedures.

 

4. Wait

The time it takes to secure an SBA loan depends on the lender you choose. The full process with a bank, from approval to funding, can take anything from 30 days to several months.

 

Are you short on time? SBA Express is a funding initiative run by the Small Business Administration that attempts to reply to loan applications within 36 hours. The maximum amount for this sort of financing is currently set at $1,000,000, with the SBA guaranteeing a maximum of 75%.

 

Your lender is responsible for finalizing the transaction and disbursing the loan cash once your application has been approved. You make direct payments to the lender, usually on a monthly basis.

Apply today with G-Force Funding for an SBA Express loan from $50,000 – $1,000,000.

 

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The 5 Best Commercial Construction Loans for Your Construction Business

5 Construction Business Loans to Consider

Small business construction loans are used to finance large construction costs such as materials, on-site amenities, temporary machine parts, and crew wages. But, with so many small business loans available—short-term loans, bank loans, invoice financing—how do you know which is best for your construction company?

 

Your search will be aided by our list of the top construction business loans. These loans will suit different stages of your construction company’s development, so you can pick one based on the age, size, and loan eligibility of your business.

 

Quick Facts on the Best Small Business Construction Loans

Before we get into the specifics of each sort of best construction company loan available, let’s go over a short summary of any loans you might not be familiar with.

 

We’ll go over who the loan is best for and what kind of qualifications you’ll most likely need to get it.

 

Equipment financing 

• This is the best option for new construction companies.
• Your lender will advance you up to 100% of the money you need to buy the equipment, and the equipment will serve as security if you default on your loan.
• Unsecured loans are more difficult for young construction companies to qualify for.

 

Business lines of credit

• Excellent choice for expanding construction companies.
• Your lender grants you access to a set amount of money that you can use whenever you want and in whatever amount you need.
• You just have to pay interest on the money that you use.
• It could be either secured or unsecured.

 

SBA 7(a) loans

• It’s best for well-established construction firms.
• SBA 7(a) loans can only be used for SBA-approved use-cases, including as working capital, equipment purchases, or debt consolidation.
• Small company loans are more difficult to qualify for than other types of loans.

 

SBA CDC/504 loans

• It’s best for well-established construction firms.
• Bank loans backed by the government with payback lengths of up to 25 years.
• Only fixed assets, like equipment or machinery, are eligible for SBA 504/CDC loans.
• It can’t be used as a source of working capital.
• There are numerous eligibility requirements.

 

Business credit cards

• Best for construction enterprises at any stage, particularly owners who need to keep track of employee expenditures.
• Different cards are used for various purposes.
• Can be used as a short-term, interest-free loan with a flexible repayment schedule.
• Can assist you in keeping track of your spending and establishing credit for future business financing.

 

Construction Business Loans: The Top 5

Now, if you want additional information on our top five small business loans for construction companies, we’ve got you covered.

 

Depending on the stage of your building company, these are the best business construction loans.

 

1. Equipment Financing (Best for New businesses)

Whatever type of project your construction firm plans to embark on, it’s almost a given that you’ll need a lot of equipment to get the job done. However, because even a single piece of equipment is costly, newer construction enterprises may not have the means to purchase all of the tools they require to get started.

 

Equipment finance is a good option for a business construction loan. With an equipment loan, you present an estimate to a lender, and if approved, they advance you 80 percent to 100 percent of the money you need to buy the equipment.

 

You’ll repay your lender in regular installments, usually monthly, much like a traditional term loan. Your loan’s term is determined by how long the lender believes the equipment you’re borrowing against will be functional and valuable.

 

The fact that your lender uses the equipment as collateral sets this loan unique from many other types of business loans you may be familiar with. If you don’t pay back your loan, the lender will seize the equipment to cover their losses.

 

Because this is a low-risk business construction loan scenario, lenders aren’t as concerned with working exclusively with low-risk businesses—that is, established businesses with years of profitability and strong credit scores. As a result, getting a loan for equipment is a little easier for newer construction companies.

 

Requirements

• 600+ credit score
• 11+ months in the business
• $100,000 is the average revenue.
• Even if your company doesn’t match these rough minimum requirements, you may still be able to get equipment financing.
• Lenders are usually just as concerned with the equipment’s value as they are with your own creditworthiness. Borrowers with the strongest applications, on the other hand, will be eligible for the lowest interest rates on their loans, as is always.

 

Business Lines of Credit ( Best for growing businesses)  

Consider a business line of credit to be similar to a business credit card, but without the card and the incentives that typically come with a credit card. Essentially, your lender provides your construction company with a revolving line of credit, with an amount determined by your lender based on your company’s financial profile and personal creditworthiness.

 

You can borrow as much as you want from those funds, and you can get the money whenever you need or want it. You’ll only pay interest on the money you use. Furthermore, interest rates on business lines of credit are typically lower than those on business credit cards—unless you make late payments, in which case your interest rate will likely increase.

 

Most small businesses can benefit from business lines of credit, but construction companies, in particular, can benefit from their flexibility.

 

You may rely on this revolving resource to repair obsolete or broken equipment, acquire and educate a slew of new personnel, and maintain a cash reserve during seasonal dips, slow periods, or if a customer refuses to pay.

 

Business lines of credit can also be used as a fallback if you need to take advantage of unanticipated possibilities to expand your company. Even if you need to apply for a company term loan to finance large, one-time purchases in the future, you can keep a business line of credit on hand to bridge those cash-flow gaps.

 

SECURED LINES OF CREDIT – When it comes to obtaining a business line of credit, there is one more distinction to be aware of: secured vs. unsecured lines of credit.

 

Both lines of credit function in the same way: they’re revolving lines of credit that you may tap into whenever you need money, and you just pay interest on the amount you use.

 

Secured business lines of credit, on the other hand, are backed by a collateral asset. Invoices, cash, inventory, physical property, equipment, personal guarantees, and blanket liens are all examples of assets that might be used as collateral for a small business loan.

 

If a borrower fails on a loan, the lender has the authority to seize any asset specified in the loan terms to repay the amount. Because that safety net reduces the lender’s risk, a secured line of credit may be easier to qualify for than an unsecured line of credit. On a secured business line of credit, lenders may offer you better rates and terms.

 

UNSECURED LINES OF CREDIT – If you don’t want to put your assets at risk, an unsecured business line of credit can be a better option. As previously stated, unsecured business lines of credit function similarly to secured business lines of credit.

 

However, because the lender has no collateral to fall back on if the borrower defaults, unsecured business lines of credit (or any unsecured loan) eligibility standards may be more strict. Lenders will only issue unsecured loans to borrowers that they consider to be low-risk.

 

Requirements

• 550+ credit score
• Annual income: $100,000 or more
• Two or more years in the business
• These numbers will change depending on which lender you work with—and which sort of lender you engage with, as business lines of credit are available from both banks and certain alternative lenders. Bank business loans typically have higher loan amounts than other lenders, but they almost always have stricter requirements.
• You can expect line of credit amounts as low as $5,000 for the most qualified borrowers working with larger banks, or as high as $1 million for the most eligible borrowers working with smaller banks, depending on the financial institution you work with and your overall financial profile.

 

SBA 7(a) Loans (Best for established businesses seeking general financing)

 

If you’ve been in business for a long time and have solid financials, you might be eligible for an SBA 7(a) loan. SBA loans are issued by banks, despite the fact that they are backed by the US government. If a borrower defaults, the Small Business Administration will cover up to 85 percent of the loan amount.

 

Because this safety net decreases the lender’s risk, banks are driven to extend SBA loans to borrowers at exceptionally favorable conditions. Cheap interest rates, long repayment periods, high business loan amounts, and low down payments are all features of SBA loans.

 

The Small Business Administration (SBA) offers a number of lending programs, each with its own set of criteria and funding amounts. However, the SBA 7(a) loan is the most popular and versatile of these government-backed loans because it can be used for a wide variety of business purposes.

 

Despite the fact that banks are assured to be paid in some way, SBA loans are in high demand, so banks still have the option of choosing which borrowers they wish to work with. That means low-risk consumers with excellent credit scores and a track record of profitability over several years.

Established construction companies have the best chance of meeting all of the SBA loan requirements. However, if you do qualify for an SBA loan, you won’t find a larger loan amount or better terms anywhere else.

 

General Requirements

• Credit score: 650 or higher, however 700 or higher is preferable.
• $100,000+ in annual revenue
• At least two years in the business

 

SBA Requirements

• a company based in the United States
• a for-profit entity
• Time and money spent on growing your business should be documented.

Minimum eligibility requirements vary by lender, and while the SBA does not have a hard credit score requirement for SBA 7(a) loans, a higher credit score will always give you a greater chance of getting approved.

Keep in mind that your SBA loan application will require a significant lot of documentation, but the effort will be well worth it if you have a chance at one of the best loans available.

 

SBA CDC/504 Loans (Best for established businesses seeking financing for fixed assets)

 

You can get up to 90% financing and repayment terms of up to 25 years with SBA CDC/504 loans. SBA CDC/504 loans can be used to buy equipment or machinery, construct new facilities, or remodel existing ones, making them suitable for your construction business. You can’t use SBA CDC/504 loans for working capital because they’re designed for fixed assets.

 

This loan is made up of three parts, unlike typical SBA loans, and the CDC’s maximum contribution is $5 million. The bank’s contribution can be up to three times that of the CDC. Just keep in mind that you’ll need to put down 10% of the whole loan amount up front.

 

The CDC portion of SBA CDC/504 loans has one rate, but the bank portion has a different rate. The CDC’s interest rate is dependent on the current rate on US Treasury bonds, which is currently ranging between 3% and 6%. The interest rate on the bank portion can be fixed or variable, but it usually does not exceed 10%.

 

Additional payments, such as an SBA guarantee fee, CDC servicing fee, and a central servicing agent fee, should also be considered.

 

Requirements

• 650+ credit score
• Not more than $15 million in net worth
• For the two years before the application, average net income after federal income taxes could not exceed $5 million.
• The project must either create or retain jobs, or it must advance public policy objectives (e.g., diversify the local economy, assist manufacturing firms, expansion of exports)
• Among other general SBA loan requirements

 

Business Credit Cards (Best for all businesses)

 

Every firm, regardless of size, age, or sector, should utilize a business credit card responsibly for everyday purchases. We define responsibility as paying your monthly bill in full and on schedule.

 

For construction companies that may need to carry a balance from month to month to pay down extra-large bills, this can be a little challenging. Carrying a credit card balance, on the other hand, means paying a lot of interest, which might eat into your cash flow. Late payments on credit cards could also reduce your credit score.

 

As a construction or building company, you have a variety of business credit card options, and your method for selecting one will vary depending on your specific needs. Here are three different views on utilizing company credit cards to fund construction works.

 

American Express Blue Business Plus – You may use a business credit card with a long 0% intro APR period like an interest-free loan if you’re savvy about it. This strategy is exemplified by the American Express Blue Business Plus card.

 

On purchases, there is a 12-month 0% intro APR period with this card. That’s a year during which you can carry a balance without paying interest (after that, a variable APR based on your creditworthiness and the market Prime Rate will apply; check the issuer’s terms and conditions for more information).

 

This will allow you to charge a large purchase on your card and pay it off over the next 12 months, interest-free.

 

Of course, make sure you pay it back—you don’t want to end up paying interest on your credit card. However, if you can make a structure like this work for you, you can not only take advantage of the amazing introductory deal, but you can also develop credit in order to qualify for a terrific business loan program.

 

American Express Plum – If payment flexibility appeals to you, and you know you won’t need a full year to pay off a purchase, the American Express Business Plum Card will provide you with all of that—plus rewards and savings.

 

The Amex Plum is a charge card rather than a credit card. That implies you’ll be free to spend as much as you want on the card because there will be no credit limit. You’ll also get a 1.5 percent discount on every dollar you spend and pay off early if you have a full 60-day grace period from your due date to pay off your spending.

 

Because this is a charge card, there are steep late penalties, so if you don’t think you’ll be able to pay off your debt in full each month, this isn’t the card for you. However, if you think it’s perfect for you, Amex will waive the $250 yearly charge for the first year to give you a chance to see if it’s right for you.

 

Bento for Business – Try the Bento for Business card if you’re not ready to fully commit to a business credit card. The Bento is a prepaid debit card for businesses. You’ll fill the Bento with your own cash after securely connecting it to your business bank account, rather than receiving an assigned credit line from a card provider, as is the case with a genuine credit card.

 

You’ll never have a monthly balance to worry about, and you’ll never have to worry about paying on time. Using the Bento will have no effect on your own credit score, either positively or negatively—which also implies that no credit check is required when applying for a Bento card.

 

Bento, on the other hand, gives you all of the ease and control of a business credit card, plus more. To begin, your Bento account allows you to generate as many employee cards as you need on a sliding scale, allowing you to effortlessly distribute cards to your team.

 

You can also use Bento’s card-management tools, such as a mobile app and a dashboard, to keep track of, limit, and alter the budgets on all of your cards.

 

Bento will also integrate with any accounting software you’re using so you can see your spending patterns—and when it’s time for a real business credit card, you’ll know exactly what you’re spending and how much you’re spending.

 

Frequently Asked Questions

 

What are the requirements for a commercial construction loan?

Although the requirements for commercial construction loans will ultimately vary depending on the type of loan and the lender you’re working with, you can anticipate to need to meet the following criteria in general:

• A credit score of 600 or above is required.
• At least one year in business with a strong yearly revenue DSCR greater than one and the ability to offer a 10% to 30% down payment

 

How do I secure a construction loan for my business?

To qualify for a business construction loan, you must:

• Make a cost estimate for your construction project.
• Examine your company’s qualifications (credit score, time in business, annual revenue, etc.)
• Compare the various types of business construction loans and choose the one that best suits your demands.
• Find a lender who can provide you with the product you want and whose standards you can meet.
• Fill up your loan application with your documents (containing information about the project, costs, and builder).
• Complete the closing process after submitting your application and reviewing your loan agreement.

 

What is the minimum down payment for a construction loan?

Typically, a lender will require a down payment ranging from 10% to 30% of the overall cost of the building project you’re looking to finance.

 

In many circumstances, a lender will only finance 70%to 90% of the project’s cost, requiring you, the borrower, to contribute the remaining funds in the form of a down payment.

 

Having said that, while the down payment amount will vary depending on the lender and your company’s requirements, construction lenders often require a 20% down payment.

 

Final Thoughts

Sure, sorting through all of the available small business finance choices can be overwhelming. And it’s true that not all types of financing are appropriate for your building company.

 

On the other hand, with so many small business loans for construction companies accessible, you’re bound to find a funding option that suits your company and its needs—even as it develops and evolves.

Apply today with G-Force Funding for business lines of credit from $20,000 – $250,000.

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