Guide

Using Property as Security for a Business Loan

Why property is the most commonly used security

Property tends to hold value predictably, is straightforward to independently value, and has an established resale market. All of that makes lenders more comfortable extending larger secured business loans and longer terms against it than against other asset types, which is why property-backed applications make up the bulk of secured business finance in the UK.

Commercial vs residential property

Commercial property you trade from, or own as an investment, is the most direct fit for a business loan secured against it. Lenders can size the loan against its assessed market value with a clear line to the business itself.
Residential property, including a director’s home, can also be used, though this brings extra considerations: a spouse or joint owner may need to provide consent, and the personal stakes of putting a home at risk are higher than for a purely commercial asset.

How loan-to-value works against property

Lenders typically lend up to a set percentage of the property’s independently assessed value, often in the 65-75% range, though this varies by lender, property type and any existing charges against it. Use our secured business loan calculator to see how loan-to-value moves as you adjust the loan amount against a given property value.

Existing mortgages or charges

If the property already has a mortgage or charge against it, a secured business loan would usually sit as a second charge. This affects both how much can be lent and the rate offered, since the second-charge lender ranks behind the first for repayment priority if the property is sold, and it’s worth disclosing any existing charge early in your application so lenders can quote accurately.

The application process against property

Applying for a business loan secured against property follows broadly the same steps as any secured application, with property-specific detail:

Enquiry. Tell us the property, its approximate value, and any existing mortgage or charge against it.
Indicative terms. We match you against lenders willing to lend against that property type and existing charge position.
Valuation. An independent surveyor values the property, at your cost.
Legal work. Solicitors register the lender’s charge, checking title and any existing charges.
Funds released. Once valuation and legal work complete, the loan is drawn down.

What happens if you can’t keep up repayments

This is the real risk to consider before you borrow against property: the lender holds a legal charge and can seek repossession and sale of the property if repayments aren’t maintained, whether that property is commercial premises the business trades from or a director’s home offered as security. It’s worth being honest about affordability before you apply, not just about what a lender is willing to offer, since the maximum a lender approves isn’t necessarily the amount you should choose to borrow.

Property security vs a commercial bridging loan

It’s worth distinguishing a standard secured business loan from a commercial bridging loan, since both use property as collateral but suit different needs. Bridging loans are short-term, typically used to complete a property purchase quickly or cover a funding gap ahead of a sale, with correspondingly higher rates reflecting the short term. A secured business loan against property is generally the better choice for longer-term business funding at a lower rate; bridging suits a genuinely short-term, time-sensitive need. See our full secured business loan vs bridging loan comparison for the detail.

Property security vs other business finance

Not every business has property to offer, and not every business wants to put property at risk for a shorter-term or smaller funding need. If property isn’t the right fit, our guide to using vehicles and equipment as security covers the alternative asset types, and unsecured business loans remove the need for a named asset entirely, in exchange for a higher rate and a smaller loan size.