Learn about secured business loans, including collateralized options like personal guarantees and SBA-backed financing. Discover how these loans work, eligibility criteria, and loan terms suitable for small businesses seeking reliable funding sources.

Guide to Collateralized Business Financing Options

When your small business needs funding, you might come across "collateralized business loans." While some believe these are guaranteed approvals, that’s a misconception. These loans are secured by assets or guarantees, reducing lender risk. This article explains what collateralized loans are and explores the primary types suitable for small enterprises.

What Are Collateralized Business Loans?

Collateralized loans are backed by assets such as property, deposits, or contractual guarantees ensuring repayment. They assure lenders that their funds are protected even if the borrower cannot pay back the loan.

These loans offer lenders confidence that they will recover their money, with common options including personal guarantees or SBA-backed financing. Let’s explore these options further.

Personal Guarantee Loans

Offering a personal guarantee means you pledge your personal assets as collateral. Should your business fail to repay the loan, the lender can claim your assets to settle the debt.

SBA-Guaranteed Business Financing

SBA-backed loans are a leading choice for small business financing. The SBA does not lend directly but guarantees a part of loans issued by partner banks, often covering up to 85% of the loan. This reduces lenders’ risk and enhances approval prospects.

Among the SBA programs, the 7(a) loan is the most widely used. Here’s an overview:

SBA 7(a) Loans

These loans are accessible to small businesses and individuals, with funding up to $5 million, suitable for acquisitions, upgrades, or operational expenses.

The term lengths vary based on the purpose: working capital loans have a 7-year term, equipment financing extends up to 10 years, and real estate financing can reach 25 years.

Interest rates depend on the lender and applicant’s financials, but are capped by SBA rules. Processing times may range from weeks to months. Applicants should review eligibility requirements on the SBA site and maintain strong personal and business financials to boost approval chances.

Further information is available at: Fundera and NerdWallet.