Secured Business Loan is a type of funding that is offered against personal guarantee or by pledging assets as collateral. Unlike unsecured business loans, secured loans require security to be deposited to acquire funds from financial institutions like banks and NBFCs. Assets like property, land and equipment are to be provided as collateral in case of default by any borrower.
Customers assure lenders that the borrowed money shall be returned on time, in form of EMIs and if not able to return the loan amount, then lender has the full authority to take the deposited security or items kept as collateral from the borrower. Interest rate offered by secured business loan is lower and affordable, as compared to unsecured loans. Even the repayment tenure offered by lender is longer, as collateral is pledged with the lender.
Eligibility for Secured Business Loan
- Existing or new customers of banks and NBFCs can avail secured business loans
- Individuals, Startups, SMEs, MSMES and Large Enterprises are eligible
- Can also be availed by Proprietorship Firms, Partnership Firms & Limited Liability Companies
- Minimum age criteria to apply is 21 years, whereas maximum can exceed up to 65 years at time of loan maturity, in some case the age can exceed up to 70 years
- Applicant or business should have good credit score and repayment and financial history
- Appropriate cash flow and security to be shown before availing secured business loan
- Business existence of at least 2 years
- Running business in profit for past 2 years
- Owning at least one out of these properties that include factory, shop or residence
Features of Secured Business Loan
Usage: Secured business loans can be availed for various purposes, such as for business expansion, buying plant and machinery, buying office space or land, paying off rent or salaries, purchasing raw materials, buying stock, inventory enhancement, debt consolidation, hiring or training staff, etc.
Loan Amount: Minimum loan amount is Rs. 10 lakh and maximum loan amount can exceed up to Rs. 20 crore, even higher depending on the business requirements and borrower’s repayment capacity
Interest Rate: Lower, as compared to unsecured business loan
Loan Tenure: Higher, as compared to unsecured business loan (Max. 15 years)
Security: Collateral security in form of land, such as residential or commercial properties
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Types of Secured Business Loans
- Secured term loan
- Equipment Finance
- Invoice Discounting
- Letter of Credit
- Inventory Financing
- Asset-based financing
- Machinery loan
- Farm or Dairy loan
Benefits of Secured Business Loan
- Amount can be borrower at lower interest rate
- Good credit score and financial history helps in getting larger loan amount
- Flexible repayment options with longer repayment tenure with affordable EMIs
- Tax benefits can be availed from Secured Business loans
Difference between Secured and Unsecured Business Loan
|Secured Business Loan||Unsecured Business Loan|
|Lower Interest Rate||Higher Interest Rate|
|Higher loan amount||Lower loan amount|
|Longer repayment tenure||Shorter repayment tenure|
|Tax benefits||No tax benefits|
|Collateral is required||No Collateral required|
|No risk to lender||Higher risk to lender|
|Credit score is not much important||Credit score plays important role|
Documents Required for Loan Application
- Duly filled application form with Passport sized photographs
- PAN Card – For individual, company and firm
- Identity Proof: Passport, Voter’s ID, PAN card, Driving License
- Address Proof: Aadhar Card, Passport, Driving license, Utility Bills (Telephone, electricity bills)
- Business Address Proof: Copy of property documents
- Income Proof: Bank statement of last 6 months, Last 2 years’ ITR, Balance sheet, P&L statement for last 2 years (audited by CA)
- Trade license and Establishment/Sales Tax Certificates
- Certified Copy of Partnership Deed
- Certified copy of Memorandum of Articles (MoA) & Articles of Association (AoA)
Note: Additional documents may be required at time of loan processing or credit assessment.
What is Secured Business Loan Against Property?
Secured business loan against property is a type of funding in which a borrower gets funds by pledging his/her residential or commercial property as a collateral or security with the bank. Funds are disbursed depending upon the Loan-to-Value (LTV) Ratio, as decided by the bank or lender. The maximum LTV ratio can be up to 90% of the property value, depending upon the sole discretion of the lender. To avail business loans against property, applicants can apply for it with private or public sector banks or even Non-Banking Financial Companies (NBFCs) offering this service. In this type of secured loan, the borrower’s pledged property becomes a collateral, submitted with the lender or bank.
Q. What is the secured business loan interest rate offered by banks and NBFCs?
Ans. The interest rate offered by financial institutions varies from bank to bank and majorly depends on the applicant’s credit score, repayment capacity, cash flow, business requirements, etc.
Q. Do I need to have collateral that should be equal to the loan amount?
Ans. Yes, you need to submit the collateral which is equal to or higher to the loan amount.
Q. What types of collateral are required to be submitted to avail a secured business loan?
Ans. Types of collateral include land, residential or commercial property, equipment, stock, raw material, machinery, gold, etc.
Q. Do I need to own any type of property to avail a secured business loan?
Ans. Yes, you need to own either of these properties to avail a secured business loan, such as home, office, shop, factory, godown, etc.
Q. What is the repayment tenure of a secured business loan?
Ans. The minimum repayment tenure is 12 months whereas the maximum repayment tenure can reach up to 15 years.
Q. What is the loan amount limit offered by financial institutions, if I take a secured business loan?
Ans. The loan amount offered is minimum Rs. 10 lakh and maximum can exceed up to Rs. 20 crore and even more, depending on the business requirements.
Also Read: What is Commercial Loan