How to use a secured business loan to improve your cash flow

Whether you're expanding operations, purchasing new equipment, or covering temporary gaps in income, securing financing can be key to running a successful business. A secured term loan is one option that can help improve your cash flow, but what exactly is it, what can you use it for, and how do you apply? Let us explain.

What are secured term loans?

A secured term loan is a type of financing where you use an assets as security. This reduces the risk for lenders, often resulting in lower interest rates, longer terms, and higher loan amounts.

Let's say you're a restaurant-owner and you apply for secured finance, offering your physical venue as collateral to secure the loan. If the restaurant was to go bankrupt or be unable to repay their loan, the lender could sell the venue (as a last resort) to make their money back and pay off the remaining loan balance.

What items qualify as collateral?

Typically, collateral is in the form of residential or commercial property, although businesses can use other valuable assets, such as equipment, real estate, and even the equity within your business. You can "update" your collateral as your business grows and you accumulate more assets. Doing so can strengthen your position with lenders and give you access to more favourable loan terms.

Common uses for a secured business loan

Secured loans are incredibly flexible, in that you can use them to fund anything and everything for your business, including:

• Purchasing equipment or machinery
• Expanding office or retail space
• Financing large-scale projects
• Covering cash flow gaps during growth periods
• Consolidating existing debts

How much can you borrow for a secured loan?

This will depend on factors like your lender's policy, your creditworthiness, your revenue and cash flow, and your business plan. With Valiant, though, you can access $10,000 to over $1,000,000.

The pros and cons of secured business lending

Secured lending may not be the right choice for every small business, so it's important to carefully consider both the benefits and the drawbacks:

The pros

• Lower interest rates compared to unsecured loans. Interest rates allow lenders to manage risk while also serving as a way for them to earn money. If you provide collateral to secure your loan, you're perceived as a lower risk and may be able to secure a lower interest rate.
• Larger borrowing limits. Once again, since the collateral gives lenders more reassurance, they may be willing to offer larger loan amounts.
• Longer repayment terms. This means you can spread out the cost of the loan over a more extended period, which will reduce the financial burden in the short term and allow you to maintain steady cash flow.
• Builds credit history if repaid on time. If you make your payments on time, you'll demonstrate your ability to manage debt responsibly, which can have a positive impact on your credit score.

The cons

• Failure to maintain repayments puts you in danger of forfeiting the asset. If your business or personal finances run into trouble and you can’t meet your loan obligations, you could lose  property, equipment, or other valuable assets used to secure the loan.
• The application process can be longer and more complex than other loan types. Unlike with unsecured loans, when you apply for secured finance, your assets need to be valued for collateral, which can be a time-consuming process.
• Limited to businesses with suitable assets. Not all businesses have the right types of assets to use as collateral. If that applies to you, there are other funding alternatives available, but we'll discuss those shortly.

How to apply for a secured term loan

Applying for a business loan by yourself, secured or not, can be overwhelming—and that's where Valiant comes. Rather than providing the loans directly, we connect you to lenders that offer financing solutions tailored to your needs. Then, we handle the application process and settle funding on your behalf.

Our platform compares finance from over 90 lenders, both banks and non-banks, so there's a wide range of options to choose from. Get in touch today.

What if you don't have collateral?

If you have a start-up or your business still has some growing to do, you may not own assets to use as collateral. This doesn't imply you can't secure funding—it's just about considering alternative loan options.

In this case, an unsecured business loan may be the right choice. This is a type of short-term that allows you to borrow money without offering collateral, and where approval is mainly based on your business's credit score and financial health. Want more information? Be sure to check out our guide to secured business loans.

Depending on how much you're hoping to borrow, a business line of credit may also be a suitable option, as many don't require security.