Types of secured business loans: A guide

Looking to grow your business but need a little financial help to get there? A secured business loan might be just what you need. These loans let you borrow money by using business assets—like equipment, inventory, or real estate—as collateral. 

In return, lenders often offer better interest rates and terms compared to unsecured options. In this post, we’ll walk you through the main types of secured business loans, how they work, and how to decide which one could be the right fit for your business goals.

Secured vs. unsecured business loans

When exploring financing options, one of the first decisions you’ll face is whether to go with a secured or unsecured business loan.

The main difference between being that secured loans require collateral—an asset that the lender can seize if the borrower stops making payments. 

Because secured loans reduce the lender’s risk, they often come with attractive benefits. But since your assets are on the line, it’s just as important to weigh the potential downsides.

Pros of secured loans:

• Lower interest rates: Since lenders have collateral to fall back on, they’re often willing to offer better rates.
• Higher borrowing limits: With valuable assets to back the loan, you may qualify for larger amounts.
• Flexible credit requirements: Even if your credit isn’t perfect, strong collateral can help you qualify.
• Builds business credit: On-time payments can help strengthen your credit profile over time.

Cons of secured loans:

• Asset risk: Defaulting on the loan can result in the lender seizing your collateral—whether it’s equipment, property, or inventory.
• Longer approval process: Secured loans often involve more documentation and appraisal of assets.
• Not all businesses have collateral: Startups or service-based businesses may struggle to offer acceptable assets.
• Personal guarantees may still apply: In some cases, you might still be personally liable, even with business collateral.

Types of secured business loans

SBA loans 

SBA loans are backed by the U.S. Small Business Administration, resulting in friendlier terms for borrowers. They work similarly to personal loans, where principal and interest are paid back monthly to the lender. Loan amount, repayment term, and rates vary from lender to lender.

Requirements:

To qualify, your business typically needs to operate in the U.S., be a for-profit entity, and meet SBA size standards. You’ll need a good credit score, solid business plan, and often, some form of collateral.

Pros:

• Lower interest rates and longer repayment terms
• Easier to qualify for than traditional loans if you meet SBA criteria
• Can be used for a wide range of business purposes

Cons:

• Lengthy application and approval process
• Lots of paperwork
• May still require a personal guarantee or collateral

Term loans

A business term loan is a traditional bank loan where you get a lump sum and repay the loan via fixed monthly payments over a 5 to 10-year term.

Requirements:

Lenders look at your credit score, time in business, revenue, and collateral. Startups might find it harder to qualify without a strong financial track record.

Pros:

• Predictable payments make budgeting easier
• Good for large, one-time investments like expansion or equipment
• Can build credit over time

Cons:

• May require significant collateral
• Not ideal for covering ongoing, flexible expenses
• Prepayment penalties may apply in some cases

Business lines of credit

A business line of credit works similarly to a credit card. Business owners can borrow what they need up to a set limit. Unlike a term loan, where borrowers get a set amount of financing, business owners can tap into a line of credit as needed.

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This is best for business owners who need the flexibility to help manage monthly variable expenses. 

Requirements:

You’ll need to be at least 6–12 months in business and show consistent revenue to qualify. Although not all lenders require collateral, an unsecured line of credit will have higher rates. 

Pros:

• Access cash when you need
• Pay interest only on what you borrow
• Great for managing cash flow or covering short-term expenses

Cons:

• Variable interest rates can make repayment unpredictable
• May require a lien on business assets
• Risk of overuse if not managed carefully

Equipment loans

According to the Equipment Leasing and Finance Association, equipment financing is a $1 trillion industry that’s growing. Equipment loans are specifically for borrowers who need to finance business assets like machines, computers, vehicles, and other equipment. They typically have fixed interest rates, and the machinery or other equipment secures the loan as collateral. 

Requirements:
You’ll need to show how the equipment will benefit your business. Lenders assess credit, revenue, and equipment value.

Pros:

• Easy to qualify since the equipment secures the loan
• Doesn’t require other business or personal assets as collateral
• May offer tax benefits through depreciation (consult an advisor)

Cons:

• Only usable for equipment purchases
• You’re still on the hook for payments even if the equipment becomes outdated
• Down payments may be required

Commercial real estate loans

Commercial real estate loans can help you buy, develop, renovate, or refinance commercial property. They typically have higher down payment requirements and interest rates than residential real estate loans.

Requirements:

Expect a pretty thorough review of your financial health—you’ll need strong financials, a detailed business plan, and a significant down payment (often 20–30%) to qualify. Your credit history and experience also play a big role.

Pros:

• Can build equity in real estate over time
• Long repayment terms (up to 25 years)
• Fixed or variable interest options

Cons:

• Large upfront costs and closing fees
• Risk of foreclosure if you default
• May tie up your capital in real estate

Invoice financing 

Invoice financing is a unique type of business loan that allows businesses to borrow against vendor invoices that have not been paid yet. This is helpful for companies that have money coming in over the next 30 to 90 days but need cash immediately for monthly expenses.

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Lenders advance a percentage (usually 70–90%) of the invoice value and release the rest (minus fees) once your client pays. While convenient, this can be an expensive form of business financing because fees can be 1% to 4% of the invoice.

Requirements:

You'll need a track record of consistent invoicing and reliable clients. 

Pros:

• Fast access to working capital
• No need to wait 30–90 days for client payments
• Doesn’t require traditional collateral

Cons:

• Fees can add up quickly
• May strain client relationships if the lender contacts them directly
• Only works if you have outstanding invoices

Alternatives

If you don’t have collateral or don’t want to risk business or personal assets, there are other ways to finance your business. Here are a few popular unsecured or alternative options:

Unsecured business loan

These loans don’t require collateral, but instead, are usually based on your credit score, business revenue, and cash flow. They’re faster to obtain but typically come with higher interest rates.

Pros:

• No collateral required
• Faster approval times
• Great if you have a strong revenue but limited assets

Cons:

• Higher interest rates
• Lower borrowing limits
• May require a personal guarantee

Small business grants

Small business grants are an ideal form of business funding because they don’t have to be repaid. Many government agencies, corporations, large companies, and nonprofits offer business grants. 

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Some can be small, such as a few thousand dollars, and others can be substantial in the hundreds of thousands of dollars. Businesses can search for federal grants online and on websites related to their company type. 

Pros:

• Free money
• No repayment, interest, or equity loss
• Encourages innovation and underserved business development

Cons:

• Extremely competitive
• Lengthy application process
• May come with restrictions on how you use the funds

Business credit cards

Another loan option business owners can utilize to fund their business is a business credit card. Much like a business line of credit, business credit cards allow business owners to borrow money up to a set limit. 

Pros:

• Easy to apply and use
• Often includes rewards or cash back
• Good for building business credit

Cons:

• High interest rates if not paid off monthly
• Lower limits compared to loans or lines of credit
• Can lead to debt if not managed responsibly

Crowdfunding 

Platforms like Kickstarter or Indiegogo let you raise funds from supporters in exchange for early access, products, or rewards—no debt or equity required.

Pros:

• No repayment or interest
• Great marketing tool to test new products
• Builds community around your business

Cons:

• Success isn’t guaranteed
• Requires time and effort to run a campaign
• May need to deliver perks or rewards on a tight timeline

Home equity-backed loans

If you’re a homeowner with sufficient equity, you can tap into your home’s equity to start or fund your business. Your home secures the financing.

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A home equity line of credit (HELOC) will provide a flexible revolving credit line and interest-only payments during the draw period (5 to 10 years). A home equity loan, in contrast, provides a single lump sum payout, repaid via fixed monthly payments (5 to 30-year term). 

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A home equity investment (HEI) can provide a lump sum and no payments for 30 years for those looking to avoid restricting their immediate cash flow. Instead, homeowners repay the investment and a share of their home's future appreciation when they sell, refinance, or use another source of funds.

Pros:

• Flexible borrowing
• Long repayment terms
• Can access larger sums of money

Cons:

• You risk losing your home if you default
• Not ideal for those with limited equity
• Interest may not be tax-deductible for business purposes

Final thoughts

Many secured business loans are available to entrepreneurs who need access to cash to start or grow their businesses. However, borrowing money to fund a business comes with risks, so it's important to weigh your options carefully. Ultimately, choosing the right financing for your business comes down to your goals, resources, and risk tolerance. 

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