Secured business loans often are term loans provided for a fixed time period on either a P&I or IO schedule that are ‘secured’ by a physical asset that has an assessable value. The critical thing about secured business loans is that the security must be owned by the business itself or one of the business's directors. Common forms of collateral used for secured term loans include residential property, commercial property, vehicles, machinery or other equipment.
The need to know
- Similar features and structures to a residentially backed home loan.
- Terms of 12 months all the way to 30 years depending on the product.
- Key feature is it must be backed by collateral from either the business or a director of the business.
- Secured business loans typically have longer repayment terms than unsecured business loans.
- Secured business loans often result in lower interest rates when compared to unsecured or other forms of business finance given the collateral backing the transaction.
- The loan must predominantly be for a business purpose and it is likely the directors of the business will need to sign a declaration detailing this.
Categories of loans
There are multiple types of secured business lending products available depending on loan need and profile of the asset being used as security.
| Metric | Full doc | Low doc | No Doc | Bridging Finance |
|---|---|---|---|---|
| Amount | Unlimited (depends on asset) | $50k – $20m | $50k – $2m | $5k – $10m |
| Max LVR | 80 | 75% | 65% | 70% |
| Term | 1 – 6 years | 1 – 5 years | 1 – 3 years | 6 – 24 months |
| Rates | 4.2 – 9.0% p.a. | 5.2 – 17.0% p.a. | 7.0 – 17.0% p.a. | 9.0 – 24.0% p.a. |
| Fees | 0.5 – 1.0% | 1.0 – 3.0% | 1.0 – 3.0% | 1.0 – 3.5% |
| Key requirements | • 2 years business financials • Statement of directors' assets & liabilities • 6 months bank statement • Valuation of security • Personal & business tax returns |
• Accountant letter for proof of income • Valuation of security • Statement of director assets & liabilities |
• Self-certified capacity to repay • Valuation of security • Statement of director assets & liabilities |
• Accountant letter for proof of income • Valuation of security • Statement of director assets & liabilities |
Key acceptance criteria
For a high chance of approval, a business must satisfy both of the below criteria.
- Loan predominantly for a business purpose
- Security full owned by a business / guarantor
Example scenario
Commercial Warehouse purchase
Client needed $3.3m to fund international expansion in a property services business with a long working capital cycle. Banks would not approve due to outstanding ATO debt and recent losses
Key transaction terms
- Amount – $3.3m
- Term – 72 months (12 months IO)
- Product – Secured term loan
- Result – Valiant found a lender that would lend 70% against director property without having to clear the business' existing ATO debt. This gave the client an excellent position for their growth.
More information
For more information on secured business loans, you can read more about them at Valiant. Check out the links below.
For more information on Connective's partnership with Valiant or Valiant's business loan platform please contact your Broker Support Manager, Valiant BDM, by calling them on 02 9571 0218 or connective@valiant.finance
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