How Secured Business Loans Work
The lender places a legal charge (first or second charge) over the security property or asset. This charge is registered at the Land Registry (for property) or Companies House (for business assets under a debenture). If the loan is not repaid, the lender has the right to enforce its charge and recover the debt from the security. This reduced risk allows the lender to offer significantly better terms than would be available on an unsecured basis.
Security Types
Residential Property
The most commonly used security. A charge against a director's home or investment property provides the lender with strong, liquid security. First charge is preferred; second charge is available if a mortgage already exists. The borrower's property is at risk if repayments are not maintained.
Commercial Property
Business premises, investment properties, warehouses, and development land can all be used as security. Commercial property valuations are more variable than residential, and lenders typically apply a lower LTV (loan to value), often 60-70%, to reflect lower liquidity in the commercial market.
Business Assets (Debenture)
A floating charge over the business's assets, stock, debtors, plant, provides security without tying it to a specific property. Typically lower lending values than property security but available where property is not held.
Eligibility for Secured Business Loans
Secured lending requires: identifiable security with a clear title; a professional valuation of the security; a solicitor to act on both sides for property security; the ability to service the loan from business or personal income; and a UK-registered business or sole trader.
Rate and Term Range
Secured business loans are available from 5.50% for the strongest security and credit profiles. Terms from 12 months to 25 years depending on the security type and loan purpose. Rates are significantly lower than equivalent unsecured facilities.