Secured business loans: borrowing against property and assets

Legal charge

A legal charge gives the lender the right to sell the property if repayments are not made. Where there is already a mortgage, the lender takes a second charge, which usually needs the first lender's consent. That consent can add time to the process.

Equitable charge

Some lenders register an equitable charge instead. This does not normally need the existing mortgage lender's consent, so it can be quicker, but the lender's rights over the property are more limited. Which type is used depends on the lender, the loan size and the property.

Benefits

• Larger loan amounts, linked to the value of your security
• Pricing is usually lower than unsecured borrowing because the lender's risk is reduced
• Longer repayment terms, which reduce monthly payments
• A newer business or weaker credit history may be less of a barrier when strong security is available

Risks

• You can lose the asset if you cannot keep up repayments; if it is a key machine, your premises or your home, the impact goes far beyond the loan
• If the sale of the asset does not cover the debt, you may still owe the shortfall, especially under a personal guarantee
• Larger sums can tempt you to borrow more than cash flow supports
• Valuation, legal and arrangement fees add to the cost, and some loans carry early repayment charges
• You usually cannot sell or refinance a charged asset without the lender's consent

For a side-by-side comparison with unsecured borrowing, read our guide to secured vs unsecured business loans.

To qualify, you will typically need to be a UK limited company, LLP, partnership or sole trader with a suitable asset and cash flow that can afford the repayments. Criteria differ between lenders, which will consider:

• The value, type and ownership of the security, and any debts already secured on it
• Your trading history, turnover and profitability
• Cash flow and the ability to afford repayments without relying on selling the asset
• Credit history of the business and its owners
• What the funds will be used for

The same asset can be viewed differently from one lender to the next. A high-street bank may prefer owner-occupied commercial property and several years of profitable accounts, while a specialist lender may accept a second charge, a mixed-use building or a shorter trading record in return for a lower loan-to-value or higher pricing. Knowing which lenders have appetite for your security type and sector is often what decides whether an application progresses.

If your credit record has problems, lenders will want to see that issues are behind you and trading is stable. See bad credit business loans for more.

A secured business loan against property typically takes four to eight weeks from application to drawdown, and sometimes longer, because it follows a process much like a commercial mortgage. The credit decision is often the quick part. Time goes on booking and receiving the valuation, the lender's solicitors checking title and preparing the charge, and, for a second charge, obtaining the first lender's consent. Leasehold property, unregistered title, properties owned by a director personally rather than the business, and slow replies to legal enquiries all add time. Loans secured on vehicles or equipment usually move faster, often within one to three weeks, as there is no property valuation or conveyancing. Having title details, accounts and existing mortgage statements ready at the start helps most.

• Unsecured business loans for smaller, faster borrowing without pledging assets
• Asset finance, where only the equipment being bought is the security
• Bridging loans for short-term, property-backed funding with a clear exit
• Invoice finance if your cash is tied up in unpaid customer invoices