Secured business loans: borrow more, for longer, at a lower rate

How a secured business loan works

A secured business loan is a form of commercial finance under which a business pledges a valuable asset, such as property, machinery or vehicles, as collateral against the sum borrowed. The lender places a legal charge over that asset for the duration of the loan; if the business defaults on repayments, the lender has the legal right to seek repossession and sale of the asset to recover what's owed.

Because the lender's risk is lower when a loan is backed by collateral, secured business loans in the UK typically allow you to borrow larger amounts, over longer repayment periods, at lower interest rates than unsecured finance. The trade-off is time: the lender needs to independently value the asset and register a legal charge before funds are released, which usually takes longer than an unsecured application.

What you can use as security

Most United Kingdom lenders will accept the following as collateral for a secured business loan, though acceptance and the loan-to-value offered depend on the specific lender and the asset's realisable value:

• Commercial property your business owns or trades from
• Residential property, including a director's home, subject to consent from any joint owner
• Land, developed or undeveloped
• Business equipment and machinery
• Commercial vehicles
• Invoices or stock, with some specialist lenders

Property is the most commonly used security because it holds value predictably and has an established resale market, which makes lenders more comfortable extending larger loans and longer terms against it than against depreciating assets like vehicles or equipment.

How much you could borrow: loan-to-value explained

The amount a lender will advance against your asset is expressed as a loan-to-value ratio: the loan amount as a percentage of the asset's independently assessed value. A £150,000 loan against a £250,000 property, for example, sits at 60% LTV. Most UK lenders cap secured business lending at 65-75% LTV for property, with lower ceilings for depreciating assets such as vehicles or equipment, since their resale value falls over the loan's term.

If the property or asset already carries a mortgage or existing charge, a secured business loan typically sits behind it as a second charge. That affects both how much can be lent and the rate offered, because a second-charge lender ranks behind the first for repayment priority if the asset is sold.

Secured business loan interest rates

Interest rates on secured business loans are generally lower than on unsecured finance, reflecting the reduced risk the lender takes on. Where your rate lands within that range depends on several factors: the type and quality of the asset offered as security, the loan-to-value requested, the term of the loan, and your business's own trading history and credit profile. A lower LTV against a strong, easily marketable asset (such as commercial property) will typically secure a better rate than a higher LTV against a depreciating asset.

Because pricing varies so much by asset and lender, treat any headline rate as indicative only. Use the calculator below to model your own numbers, and get matched with lenders for a real, asset-specific quote.

The application process, step by step

A typical secured business loan application follows a similar path across most UK lenders, though the exact sequence varies by provider:

• Initial enquiry. You tell us the loan amount, purpose, and the asset you'd offer as security.
• Indicative terms. We match your enquiry against our lender panel and come back with indicative rates and LTV, typically within 24-48 hours.
• Valuation. The lender instructs an independent valuation of the asset.
• Legal work. Solicitors register the lender's legal charge over the asset.
• Funds released. Once valuation and legal work complete, the loan is drawn down.

Lenders will also review your business's recent accounts or management information, existing charges already registered against the asset, and director credit history, though this carries less weight than for unsecured applications because the asset itself offsets much of the lender's risk.

Advantages and disadvantages of secured business loans

Weighing the trade-offs against your own situation is the most useful step before you apply:

• Advantages: larger loan sizes, longer repayment terms, lower interest rates, and often a more realistic route for businesses with a shorter trading history but a valuable asset available.
• Disadvantages: the pledged asset is at risk if repayments aren't maintained, the application takes longer due to valuation and legal work, and upfront valuation and legal costs are typically payable regardless of whether the loan completes.

Because secured business lending of this kind, to companies, LLPs and sole traders for business purposes, is generally unregulated credit, it sits outside the Financial Conduct Authority and Prudential Regulation Authority's regulated consumer credit and mortgage regimes. We'll always tell you if a specific enquiry would need to be referred to an authorised firm instead.

Secured business loans vs asset finance

It's worth distinguishing a secured business loan from asset finance, since the two are often confused. A secured business loan lends against an asset you already own, and the funds can be used for any business purpose. Asset finance instead funds the purchase of a specific new asset, such as machinery or a vehicle, with that asset itself acting as the security. If your funding need is a single, identifiable purchase, asset finance may be a more direct fit than borrowing against an existing owned asset.

Newer businesses and government-backed alternatives

A business with a short trading history but a valuable asset to offer is often better placed applying for secured finance than for unsecured borrowing. Where a suitable asset isn't available, the Growth Guarantee Scheme, delivered through the British Business Bank and its accredited lenders, is a government-backed alternative worth researching alongside our lender panel, particularly for smaller or newer businesses.

Secured vs unsecured business loans: the key difference

The difference between the two comes down to collateral. A secured business loan requires a named asset the lender can fall back on; an unsecured business loan is priced on your trading history and cash flow instead, and usually still asks for a personal guarantee from directors. If you don't have a suitable asset, or want to avoid pledging one, our unsecured business loans page covers that route in full, and oursecured vs unsecured comparisonputs both side by side.