About Fixed Rate Secured Loans for Businesses

About Fixed Rate Secured Loans for Businesses
  • Opening Intro -

    If you need to borrow money for your business, a fixed rate secured loan may provide you with the best borrowing option.

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Such loans are offered by banks and credit unions and typically provide a variety of collateral options and offer a streamlined approval process. And with a secured interest rate in place, you will always know what your monthly payments are, allowing you to budget accordingly.

Overview

Secured loans can help business owners achieve their goals. The loan can be used for almost any reason including refinancing debt, purchasing inventory, managing cash flow, financing receivables and even for buying equipment.

Fixed rate secured loans can be had in large amounts with many lenders setting a minimum loan amount ranging from $10,000 to $25,000. Interest rates are usually pegged at the prime rate plus two points and a lump sum distribution is provided.

Application

Business owners should expect that documentation will be required with the loan application. Lenders may require copies of the two most recent business tax returns and may also require copies of your personal tax return.

Some lenders want other financial statements including your company’s balance sheet, a profit and loss statement and other financial data. Expect to furnish your tax identification number, a copy of your articles of incorporation, a business plan and a list of outstanding obligations. Your lender will provide a list of required documentation for you.

A personal guarantee to repay the loan may be required. If there are multiple owners of the business, certain stakeholders may be asked to provide a guarantee. Those holding the greatest percentage of ownership will be asked to back the loan.

Secured Loan Advantages

If you are dealing with a business-friendly bank, you can expect that your fixed rate secured loan application will be reviewed promptly. Lenders typically provide a clear and simple path for loan application review and approval with a decision rendered within one or two business days.

Choose a bank or credit union where you are already a customer and you can expect to receive a discount. Bankers love to reward their best customers and will respond in kind to your loyalty.

Qualified small businesses may have their loans backed by the Small Business Administration (SBA). Some banks achieve “preferred lender” status and receive special consideration from the SBA for writing loans. When the SBA backs a loan, it effectively transfers the loan default risk from the lender to the federal government. That backing empowers bankers to underwrite more business loans.

Secured Loan Disadvantages

Not every business can or should opt for a fixed rate secured loan. Some businesses would be better served by a line of credit, a lending vehicle that provides cash when you need it. Instead of getting a lump sum loan distribution, you tap your funds as needed. Typically, your bank will provide a draw period of five to 10 years.

Another disadvantage may be the bank’s insistence on a personal guarantee. If not every partner is willing to extend a guarantee, then this loan option will not work out. You can ask your banker for other business loan options.

Cash-Secured Loans

The collateral you put forth will secure your loan. Collateral can be anything including a building, equipment or money.

When money is offered as collateral, your loan is cash secured. Typically, your bank will allow you to put up a certificate of deposit or a savings account to secure the loan. The bank is provided the first lien on the funds and will tap your account if you default on your loan.

Loan Considerations

Borrowers should know that there are closing costs associated with most loans. Those costs are laid out by the banker after your loan has been approved and are due by the closing date. In some cases your banker may allow you to roll those costs into the loan, effectively freeing you from the burden of providing cash at closing.

See AlsoFixed Rate or Adjustable Rate Mortgage?

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Categories: Small Business

About Author

Matthew C. Keegan

Matt Keegan is a freelance writer and editor as well as publisher of "Matt's Musings", his personal blog. Matt covers campus, consumer, business and financial topics on various websites and blogs, and has been published in the "Houston Chronicle", "Sam's Club Magazine" and "Wisconsin Golfer".