InfoChoice’s top five Secured Business Loans in Australia

At some point during the life of a business, the owner will think about getting a business loan for some reason or other.

A business may need a loan because it’s growing and needs to move to larger premises, or it may need working finance to buy raw materials or stock to fulfil a big order. If the funds aren’t there to buy the materials then the business will miss out, which is why a small business loan can be invaluable.

There are lots of different business loans on the market, so it’s important to find out what they are and which one is the most suitable for your enterprise.

Of the many financial solutions available, the two most commonly-used are unsecured and secured business loans. Each type has its pros and cons.

Unsecured business loans are useful if:

  • You’re looking for a relatively small business finance solution, like $10,000 to $25,000, for example
  • You’ve not been in business for long and you don’t have much equity in your business or many assets to use as security
  • You need the funds fairly soon, as unsecured loans don’t involve much legal set–up or valuations of assets
  • You don’t want to expose your assets or property to the risk of repossession
  • You’re looking for a more flexible repayment term, and
  • You can demonstrate that your cash flow finance is enough to accommodate the repayments.

Secured loans might be more appropriate if:

  • You’ve been operating for a number of years, with a steady track record
  • You’re looking to borrow a larger amount – $50,000 or more – because you can back up your loan with assets or property
  • You can wait longer for the funds, as secured loans take longer to be set up
  • You’re hoping for lower interest rates, as the security means the lender isn’t taking as much of a risk as with an unsecured loan
  • You’re looking for a longer repayment period, sometimes up to 25 years, and
  • You have a patchy credit record, as lenders will feel “safer” lending money to you if they have the security of your assets.

How to choose the best secured loan for your business

Head to a comparison site to look at secured business loans before making a shortlist of the most likely prospects. You should look at:

  • The lender’s eligibility criteria; make sure you fit all of them before you apply as you’ll simply be rejected if you don’t
  • The interest rate, as well as any set up or ongoing fees involved, as these will help you to work out the total cost of the loan
  • How long the repayment terms can be, as the longer the term, the more you’ll pay in interest over the years
  • What, if any, fees there are for early repayment, late payments or occasional over payments, and
  • What types of asset or property the lender accepts and how the value of the assets affects the amount of money you can borrow.

What you can offer as collateral

The assets that are most commonly used as collateral are commercial or residential property. In practice, however, any item that has significant value can be used as security. Each lender will have different requirements and allowances for collateral, which is why it’s important to find these out before applying. Assets can include:

  • Your business inventory and equipment
  • Future invoices
  • Commercial or personal vehicles
  • Jewellery
  • Fine art pieces, and
  • Personal savings.

How to apply for a secured business loan

Secured business loans take longer to apply for and establish than unsecured loans, mainly because they involve getting items valued and then pledging them. Here are some tips to increase your chances of a successful application.

Get your assets valued

Make sure you have a professional valuation of each asset before you include it in your collateral offer so that you – and your lender – are certain about its value.

Create a business plan

If you’re looking for a large sum, even if it’s for ongoing trade finance, then you’ll have to explain to the lender why you need it and why it’ll work out well for you both.

Check and tidy up your credit report

Even though you’re applying for a secured loan, your credit history is still important, so make sure it’s alright. If there are any listings on it that shouldn’t be there, get them deleted.

Justify your loan amount

To yourself and to your lender. It should be enough to do what your want to do; not too little or too much. Too little means you may have to ask for further credit and too much can result in unmanageable repayments.

Work out how you plan to repay

Most loans require monthly repayments, but if your loan calculates interest daily, then making fortnightly or weekly repayments can reduce your overall interest burden.

Infochoice’s top picks for secured business loans

The Valiant Finance Secured Business Loan

This loan has a variable rate of interest but the base rate is 4.