5 Things You Should Know Before Taking Secured Business Loans

From managing day-to-day operations, purchasing equipment, commercial vehicles, to expansion, there are several reasons why a business might need additional funding. While there are now many different options to meet the funding needs of a business, an increasing number of businesses now prefer secured loans.

Higher loan amounts, competitive interest rate, and flexible loan tenure are some of the reasons that make secured loans an ideal option for gathering business funds. But what are these loans? Why should you take one? Let us have a look at five important things about secured loans to help you make the decision-

1. What is a Secured Loan for Businesses?

A secured loan is a type of loan where the borrower is required to back the loan amount with collateral or security. The collateral can either be valuable assets like commercial property or a personal guarantee.

As compared to unsecured loans or collateral-free loans, it is easier to get a secured loan as the lender has security against the loan amount. This helps them to reduce the risk of default considerably. If at all, the borrower is not able to repay the loan, the lender will then have a legal right to sell the collateral for recovering the unpaid dues.

2. What is the Maximum Loan Amount and Repayment Tenure?

Secured loans can range from Rs. 2 lakhs to Rs. 2 crores and even higher. However, the loan amount you will be eligible for would depend on the collateral you pledge against the loan. The LTV (Loan to Value) ratio that is the ratio of loan to the asset in such loans is generally 60%-80%.

You can get a secured loan for your business for a tenure ranging from 5 years to 12 years. This ensures that you have adequate time to repay the loan while also being able to afford the business expenses.

3. What is the Interest Rate on Secured Loans?

The interest rate on secured loans for business can vary significantly between the lenders. Many of the lenders also allow you to select between fixed-rate of interest and floating rate of interest once you are approved for the loan.

With fixed interest, the interest rate will remain the same throughout the loan tenure. With floating interest, the interest rate will fluctuate as per the market fluctuations.

4. What are the Eligibility Requirements for Such Loans?

Here are some of the most important eligibility requirements that are common among most secured loan lenders in India-

• Applicant should be a citizen of India and above the age of 21 years
• A self-employed individual with at least three years of business experience
• Profitability in the business balance sheet
• Proof of IT returns and business turnover of at least 2-3 years

5. Are There Additional Fees/Charges Involved?

There are also additional charges like loan processing fees that you would be required to pay for taking secured business loans. The processing fee can range from 1%-3% of the loan amount sanctioned plus applicable GST.

In case of default, you will be required to pay penal interest, which is generally at the monthly rate of 1.5%-2% of the due amount.

Secured Loans for Growing Needs of a Business

While many different types of loans are available for businesses, a secured loan has the edge over other options due to lower interest rates and higher loan amount. If you have business assets that can be pledged, or can take a personal guarantee for the loan, a secured loan for your business can be a wise option.

You can always get in touch with a reputed lender to discuss your loan requirements and thoroughly understand secured loans and their benefits.