Secured business loans: apply once and we’ll approach suitable lenders for you

A secured business loan is approved on two tests: whether the company can afford the repayments, and whether the business assets offered as security would cover the lender if it could not. Both tests run side by side, which is why the process has more stages than unsecured borrowing.

1. Initial assessment. The lender reviews accounts, bank statements and the purpose of the loan to judge affordability.
2. Security review. It looks at the assets offered, any existing charges registered against the company at Companies House, and whether another lender already has priority.
3. Valuation. For plant, machinery or vehicles, the lender may instruct an independent valuer, usually at the company's cost. Valuers often report both a market value and a lower forced-sale value.
4. Credit approval and offer. The lender confirms the amount, term, price and conditions, including any personal guarantees.
5. Legal work. Solicitors prepare the loan agreement and the charge or debenture. If an existing lender holds a charge, a deed of priority or a release may be needed.
6. Completion and registration. Funds are released, and the charge is registered at Companies House, where it becomes publicly visible.

Throughout the loan, the company usually has to keep the charged assets insured, maintained and in its possession, and must not sell them without the lender's consent.

Secured business loans differ mainly in what the lender takes security over and how much control that gives it. Knowing the difference helps you understand what you are agreeing to.

• Fixed charge: attaches to specific identified assets, such as a named machine. The company cannot sell or replace that asset without the lender's permission.
• Floating charge: covers a changing pool of assets, such as stock and receivables, which the company can trade in normally until a default event 'crystallises' the charge.
• All-assets debenture: combines fixed and floating charges in one document. It gives the lender wide rights and can affect your ability to raise other finance later.
• Second-ranking security: some lenders will lend behind an existing charge holder with that lender's consent, usually at a higher price.
• Cash or deposit security: occasionally a lender takes a charge over a cash deposit held by the company.

Before agreeing to a debenture, check whether existing finance agreements allow further security. Many contain a 'negative pledge' clause that prevents it without consent.

The cost of a secured business loan is the interest plus all set-up and exit fees, and set-up fees are typically higher than for unsecured loans because of the valuation and legal work. Pricing is often lower per year, but only a full total-cost comparison tells you which option is cheaper overall.

• Interest: fixed or variable. Variable rates are often linked to the Bank of England base rate, so repayments can rise.
• Arrangement fee: often a percentage of the loan, sometimes added to the balance.
• Valuation fee: payable to the valuer, often whether or not the loan completes.
• Legal fees: the lender's solicitor costs are usually paid by the borrower, and you may want your own solicitor too.
• Exit or early repayment fees: common on fixed-rate loans.
• Ongoing conditions: insurance, asset maintenance and reporting can carry their own costs.

The price is driven by the quality and resale value of the security, the loan-to-value ratio, the company's trading strength, the term, the amount and the directors' credit history.

Illustrative example only: actual costs depend on the lender and your circumstances.

A hypothetical manufacturing company owns machinery valued at £400,000 and borrows £250,000 over 60 months to fund an expansion. The lender takes a fixed charge over the machinery and sets a monthly repayment of £5,000.

• Total repayments: £5,000 x 60 = £300,000
• Interest element: £300,000 minus £250,000 = £50,000
• Arrangement fee £2,500, legal fees £1,500 and valuation fee £1,000: £5,000 in total
• Total cost of credit: £50,000 + £5,000 = £55,000
• Loan to value: £250,000 divided by £400,000 = 62.5%

If the same company chose a two-year unsecured loan instead, monthly repayments would be much higher, but the total interest could be lower. Running both scenarios with your relationship manager shows the real trade-off.

The amount is usually the lower of two figures: a percentage of the security's value and the amount the company's cash flow can comfortably repay. Strong security does not make up for weak affordability.

On the security side, lenders apply a loan-to-value limit that depends on how easily the asset could be sold. Newer, standard machinery or commercial vehicles with an active resale market often support a higher advance than specialist or older equipment. On the affordability side, lenders compare profits and cash flow with all debt repayments, sometimes using a debt service cover ratio.

Our guide on how much a limited company can borrow explains these calculations in more depth.

With a secured loan, the lender can enforce against the charged assets if the company defaults, and directors may also be liable under personal guarantees. These terms deserve careful reading.

• Enforcement rights: what the lender can do on default, including taking and selling the assets or appointing an administrator under a qualifying floating charge.
• Personal guarantees: whether they are limited or unlimited, and whether they continue after the loan is refinanced. See what a personal guarantee is.
• Covenants: financial tests, such as minimum profit or cover ratios, that can put the loan in default even when every payment has been made.
• Early repayment: fees and notice periods for clearing the loan early or refinancing.
• Variable rate risk: how much repayments would rise if rates went up.
• Release of security: how and when the charge will be removed from Companies House once the loan is repaid.

Independent legal advice is strongly recommended before signing a debenture or guarantee.

A secured loan is usually the better fit for a large, long-term need where the company has assets to offer. Other products can be simpler or quicker in different situations.

• Unsecured business loans: faster with no charge over assets, better for smaller amounts and shorter terms.
• Asset refinance: releases cash from equipment or vehicles the company already owns, with the lender taking ownership or a charge over that specific asset. Often a closer fit when one asset is doing all the work.
• Invoice discounting: better when the company's main asset is its sales ledger, as funding grows with turnover.
• Acquisition finance: designed for buying another business, often combining security over the target's assets with other structures.

Good security can widen the options, but it rarely replaces the need to show the repayments are affordable. Lenders still assess credit history and trading performance.

Some lenders on our panel will consider past credit problems if they are explained and resolved, particularly where the security is strong. A company with a shorter trading record may find lenders want a lower loan-to-value or a shorter term. Where profits are low, recent management accounts, an order book or a clear explanation of one-off costs can help. Each lender sets its own criteria, and we will tell you honestly if we think an application is unlikely to succeed.

Secured business loans to limited companies, LLPs and partnerships of four or more partners are generally unregulated, and the protections of the Consumer Credit Act generally do not apply. Your rights come mainly from the loan agreement, the debenture or charge, and any guarantee.

Welcome Finance is not authorised or regulated by the FCA and arranges unregulated business finance only. Read the documents in full, ask about anything unclear and take independent legal and financial advice. The guide to secured vs unsecured business loans is a useful starting point.

Secured lending involves more parties, from valuers to solicitors, so having one dedicated relationship manager matters. That person is a real point of contact by phone, email and chat, from first enquiry until the lender pays out.

1. Check eligibility in about 60 seconds without affecting your credit score.
2. Your relationship manager reviews the purpose, amount and the assets available.
3. We approach suitable lenders on our panel and explain how their security requirements differ.
4. When you decide to apply, the lender runs its credit checks and arranges any valuation.
5. We help you understand the offer, including all fees, the charge and any guarantees.
6. We keep track of legal work and completion until funds reach your account.

We charge your company no fee. We are paid a commission by the lender when the finance completes, you can ask how much it is, and it can differ between lenders. See how we are paid.

Can my company sell an asset that is under a fixed charge?

Not without the lender's consent. The lender may require part of the sale proceeds to repay the loan or agree a replacement asset.

Will a debenture stop us getting other finance?

It can make it harder, because new lenders will rank behind the debenture holder. A deed of priority with the existing lender can sometimes solve this.

Who pays for the valuation?

Usually the borrower. Ask whether the fee is refundable if the loan does not proceed.

Can we use the loan to refinance existing secured debt?

Often yes. The new lender will usually arrange for the old charge to be released at completion, using part of the new loan to repay it.

Is a fixed or variable rate better?

A fixed rate gives certainty, while a variable rate may start lower but can rise. Fixed rates often carry higher early repayment fees.

What is a forced-sale value?

It is the valuer's estimate of what an asset would raise in a quick sale. Lenders often base their advance on this lower figure.

Are personal guarantees needed if the security is strong?

Often they are still requested, although the amount may be limited. It is worth asking whether a lender will cap the guarantee.

Can an LLP offer security?

Yes. LLPs can grant fixed and floating charges, which are registered at Companies House in a similar way to company charges.

How long does the charge stay on the public record?

Until it is satisfied. Once the loan is repaid, the lender should file a statement of satisfaction at Companies House, which you can check.