Can you get a secured business loan with bad credit?

A poor credit history doesn't always mean your business has reached the end of the road when it comes to borrowing. While some lenders may be reluctant to offer unsecured finance to businesses with adverse credit, providing security against the loan can improve your chances of securing the funding you need.

A secured business loan uses an asset as collateral, reducing the lender's risk if repayments aren't made. This added security means some lenders may be willing to consider applications from businesses with bad credit, provided the loan remains affordable and the security offered is suitable.

In this guide, we'll explain how secured business loans work, who they're suitable for, the types of assets that can be used as security, and what lenders are likely to consider if you have a poor credit history.

What is a secured business loan?

A secured business loan is a type of finance where the borrower offers an asset as security against the amount borrowed. If the business is unable to repay the loan, the lender may have the legal right to recover some or all of the outstanding debt by selling the secured asset.

Because the lender has additional protection, secured loans can often provide:

• Higher borrowing limits
• Longer repayment terms
• More competitive interest rates than unsecured borrowing
• Greater flexibility for businesses with weaker credit profiles

Can you get a secured business loan with bad credit?

Yes, it's possible to get a secured business loan with bad credit, although approval is never guaranteed.

Many lenders take a broader view of an application than simply looking at a credit score. While your credit history remains important, they'll often assess factors such as:

• The value of the security being offered
• Your business's affordability and cash flow
• Turnover and trading history
• The purpose of the loan
• Any previous adverse credit and the reasons behind it

Offering suitable security can reduce the lender's risk, making it easier for them to support applications that may not meet the criteria for an unsecured business loan.

Why security can improve your chances

When a lender provides an unsecured loan, they're relying solely on your ability to repay the borrowing. If repayments stop, recovering their money can be difficult.

With a secured business loan, there's an asset backing the borrowing. This doesn't remove all risk, but it provides an additional layer of protection for the lender.

As a result, businesses with bad credit may benefit from:

• Access to lenders that wouldn't offer unsecured finance
• Higher maximum loan amounts
• Longer repayment periods to improve affordability
• Potentially lower interest rates than unsecured bad credit borrowing

What can you use as security?

The assets accepted will vary between lenders, but common forms of security include:

• Commercial property
• Residential property
• Industrial units or warehouses
• Land
• Plant and machinery
• Business vehicles
• High-value equipment
• Stock or inventory
• Debtor book (outstanding invoices)

The value of the asset will usually need to comfortably cover the amount being borrowed, although each lender will have its own loan-to-value limits.

How much can you borrow?

There's no fixed borrowing limit for secured business loans, as the amount you can access will depend on your individual circumstances.

When assessing your application, lenders will typically consider several factors, including the value of the asset being offered as security, your business's turnover and profitability, any existing borrowing commitments, your ability to afford the repayments, and how you intend to use the funds.

Businesses able to offer higher-value security may be eligible to borrow more than they could through an unsecured business loan. However, the final amount will always depend on the lender's individual criteria and its assessment of your business's affordability and overall financial position.

Will lenders still check your credit report?

Yes. Even when security is being offered, most lenders will still carry out credit checks. Depending on the application, this could include:

• A business credit check
• A personal credit check on company directors
• Searches for County Court Judgments (CCJs)
• Previous insolvencies
• Missed repayments or defaults

Advantages of secured business loans

For businesses with adverse credit, secured borrowing can offer several benefits.

👍 Larger Borrowing Amounts

Using valuable assets as security can increase the amount a lender is willing to offer.

👍 Better Approval Prospects

Businesses that may struggle to obtain unsecured finance could have more options when security is available.

👍 Longer Repayment Terms

Repayment periods are often longer than unsecured loans, helping spread the cost over several years.

👍 Potentially Lower Interest Rates

Because secured lending generally presents less risk to the lender, interest rates may be lower than comparable unsecured loans for businesses with poor credit.

Disadvantages of secured business loans

Secured borrowing isn't suitable for every business. Before proceeding, it's important to understand the potential drawbacks.

👎 Your Asset Is at Risk

If repayments aren't maintained, the lender could ultimately take possession of the secured asset to recover outstanding debt.

👎 The Process Can Take Longer

Property valuations, legal work and asset verification may increase the time it takes for funds to be released.

👎 Additional Costs

Depending on the lender and the asset involved, there may be valuation fees, legal fees or arrangement charges.

Alternatives to secured business loans

If you don't have suitable assets to offer as security, other funding options may still be available depending on your circumstances.

These could include:

• Unsecured business loans
• Asset finance
• Invoice finance
• Merchant cash advances
• Business lines of credit
• Revenue-based finance

Frequently asked questions

Can I get a secured business loan with bad credit?

Yes. While bad credit may reduce your options, some lenders are willing to consider applications where suitable security is available and the business can demonstrate affordability.

Does offering security guarantee approval?

No. Lenders will still assess factors such as affordability, cash flow, trading history and credit profile before making a lending decision.

Can I use my home as security?

Some lenders allow residential property to be used as security, although this carries significant risk. If repayments aren't maintained, your home could be at risk.

Are secured business loans cheaper than unsecured loans?

They can be. Because secured lending generally presents less risk to the lender, interest rates may be lower than comparable unsecured borrowing. However, rates always depend on your individual circumstances.

Do I need a personal guarantee?

In many cases, yes. Even with a secured business loan, some lenders may still require a personal guarantee from company directors. This means you agree to be personally responsible for repaying the loan if the business is unable to do so.

How long does approval take?

Straightforward applications may be completed within a few days, while loans involving property valuations and legal work can take several weeks.

Our final thoughts

Having bad credit doesn't necessarily prevent your business from accessing finance. If you can offer suitable security and demonstrate that your business can comfortably afford the repayments, a secured business loan may open up funding opportunities that wouldn't otherwise be available.

As every lender has different criteria, comparing multiple options can help you identify the most suitable solution for your business's circumstances.