Essential Insights into Secured Business Loans
Learn the fundamentals of secured business loans, including types like SBA-backed and personal guarantee loans. Understand how collateral, guarantees, and loan terms work to help small businesses access suitable funding options effectively.
Essential Insights into Secured Business Loans
If you're seeking funding for your small enterprise, you might have heard of "secured business loans." Many assume this means guaranteed approval, but that's a common misconception. In reality, secured business loans are loans backed by some form of collateral or guarantee. Let's explore what these loans entail and review the most popular types available for small businesses.
What Are Secured Business Loans?
Simply put, secured business loans are loans that are backed by collateral, a deposit, or an agreement ensuring repayment. This guarantees the lender that they'll recover their funds even if the borrower defaults.
Personal Guarantee Business Loans
When you provide a personal guarantee, you're offering your own assets as collateral. If your business can't repay the loan, the lender has the legal right to seize your assets to cover the debt.
SBA-Backed Business Loans
SBA-backed loans are among the most prevalent secured business financing options. It’s important to note that the SBA doesn't lend money directly; instead, it guarantees a portion of loans provided by partner banks. Typically, the SBA guarantees up to 85% of the loan amount, giving lenders confidence that they will recoup their investments even if the borrower defaults.
The SBA offers various loan programs, with SBA 7(a) loans being the most common. Here's an overview of this popular option.
SBA 7(a) Loans
Small businesses or individuals can access SBA 7(a) loans up to $5 million, used for purposes such as acquisitions, renovations, or operational needs.
The repayment terms depend on the loan's purpose: working capital loans have a 7-year term, equipment financing lasts up to 10 years, and real estate loans can extend up to 25 years.
Interest rates are determined by the lender and your financial profile but are capped by SBA regulations. Processing times can range from several weeks to months. Applicants should review eligibility criteria via the SBA website and ensure strong personal and business finances to improve approval chances.
For more details, visit: Fundera and NerdWallet.
