Definition
A secured loan is tied to an asset, such as a home, commercial premises, a vehicle or machinery, that the lender is entitled to recover and sell if repayments stop. Because the lender has something to fall back on, it can generally offer more money, more time and a keener price than it would without security. The trade-off is that the secured asset can be taken and sold on default.
Security is what turns a lender’s risk into something more manageable, and it is the main reason secured loans can be larger and cheaper.
Types of security
Property security is recorded on the land title through a mortgage or caveat. Security over vehicles, equipment and other personal property is registered on the Personal Property Securities Register. A general security agreement can cover most business assets at once.
What changes with security
With good security, lenders can offer larger amounts and longer terms, and may look past a short trading history or old credit issues. With real estate as security, business borrowing generally runs from $20,000 up to $5,000,000.
The risk
Security means the asset is genuinely at risk. Our guide to secured versus unsecured loans weighs the trade-off. To explore secured options, make one enquiry.
Common questions
What can be used as security?
Common security includes residential and commercial property, vehicles, equipment, receivables and, through a general security agreement, other business assets.
Can I lose my home with a secured business loan?
Where a home is pledged and arrears are not sorted out, the lender may take enforcement steps that can end with the property being sold.
Sources and further reading