Essential Insights on Secured Business Loans
Discover essential facts about secured business loans, including types like personal guarantees and SBA-backed financing. Learn about loan options such as SBA 7(a) loans, their purpose, eligibility, and application process. This guide helps small business owners understand how secured loans work and how to access funding effectively.
If you're seeking funding for your small business through a loan, you'll frequently encounter the term “secured business loans.” Many mistake this as a guarantee of loan approval, but that’s not accurate. To clarify, let’s explore what secured business loans truly mean and examine the main types available.
What are secured business loans?
In simple terms, secured business loans are loans backed by a guarantee, which can be collateral, deposits, or contractual agreements.
This guarantees that lenders will reclaim their funds even if the borrower defaults.
When discussing secured business loans, we often refer to those with personal guarantees or those backed by the Small Business Administration (SBA). Here’s a closer look at both options.
Personally guaranteed business loans
When you provide a personal guarantee, you agree to use your assets to settle the debt if your business cannot. This grants the lender the legal right to seize your assets to recover their loss.
SBA-backed business loans
SBA-guaranteed loans are among the most common secured business financing options. It's important to note that these loans are not directly offered by the SBA itself, but through partner lenders such as banks. The SBA guarantees a significant portion of the loan, typically up to 85%, assuring lenders they will recover most of their funds even if the borrower defaults.
SBA provides various loan programs for small businesses, with the SBA 7(a) loan being the most popular. Let’s explore it further.
SBA 7(a) Loans
Eligible small businesses and individuals can access SBA 7(a) loans of up to $5 million. These funds can be used for diverse purposes such as purchasing assets, renovating facilities, or supporting daily operations.
The repayment terms vary based on the loan purpose: 7 years for working capital, 10 years for equipment, and up to 25 years for real estate.
Interest rates depend on the lender and borrower qualifications, but lenders cannot exceed the SBA’s maximum rates.
Approval times range from several weeks to months. For qualification details and application steps, visit the SBA website. Having strong financial standing enhances your chances of approval.
https://www.fundera.com/business-loans/guides/guaranteed-business-loans#howtoqualify
https://www.nerdwallet.com/blog/small-business/small-business-loans-sba-loans/
