Loan to value (LTV): what it means for business borrowing
Loan to value (LTV) is the size of a loan as a percentage of the value of the property or asset it is secured on. A £300,000…
Business loans
Collateral: what it means for business borrowing
Collateral meaning: an asset pledged as security that a lender can sell if a loan is not repaid. Types of business collateral, an example and loans without it.
In this guide
Collateral is an asset that secures a loan. If the borrower does not repay as agreed, the lender can take and sell the collateral to recover what it is owed. In the UK the word "security" is used in the same sense.
Common types of business collateral
| Collateral | How lenders take it | Typical finance |
|---|---|---|
| Commercial or residential property | A legal charge (a standard security in Scotland) | Secured loans, commercial mortgages |
| Equipment and vehicles | Ownership stays with the lender until paid, or a charge over the asset | Asset finance |
| Unpaid invoices | Assignment of the debts | Invoice finance |
| All of a company's assets | A debenture with fixed and floating charges | Asset based lending and larger loans |
An example
A café owner wants £80,000 to buy a second site. Unsecured, lenders limit the amount and charge more. Offering a second charge over the owner's commercial unit, worth £300,000 with £120,000 owed on it, gives lenders collateral at a combined loan to value of about 67%, which widens the choice and usually lowers the rate.
How lenders value collateral
Lenders do not lend the full value of an asset. They allow for the cost and time of selling it, and for values falling. Property is valued by a surveyor; equipment by its age, type and resale market; invoices by how reliable the customers are. That is why each product has a maximum advance or loan to value.
£212,300A transaction we arrangedApproved, then nearly lost at completion. £212K consolidated.A property-title requirement threatened a consolidation deal at the last hurdle. We worked it through and kept the structure intact.How collateral affects borrowing
- More collateral, relative to the loan, usually means a larger loan, a longer term and a lower rate.
- Lenders value collateral cautiously and lend only a percentage of it.
- A personal guarantee is not collateral, but it gives the lender a claim against you personally.
- Many businesses borrow without collateral through unsecured business loans, at higher rates and smaller sizes.
Compare the two in secured vs unsecured loans. We search the market for the structure that fits the security you have. Any broker fee depends on the lender, with nothing to pay upfront.
Related terms
Sources
This guide is general information, not financial advice. Lenders set their own criteria, rates and terms, and all finance is subject to status.
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FAQs
Common questions
Can I get a business loan without collateral?
Yes. Unsecured business loans need no asset as security, though most ask directors for a personal guarantee. They are usually smaller and cost more than secured loans.
Can I use my home as collateral for a business loan?
Yes, through a homeowner or secured business loan with a charge on the property. It can open larger amounts and lower rates, but your home is at risk if the loan is not repaid, so take advice first. See homeowner business loans.
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