Understanding Secured Loans: Types, Benefits, & How to Apply

Securing the right funding becomes crucial for businesses seeking growth. However, more than three-quarters of small business owners express concerns about their ability to access the capital they need. With a variety of financing options available, finding one that offers both competitive terms and higher borrowing limits can be overwhelming. This is where secured loans come into play. 

By leveraging valuable assets like property or machinery, businesses can gain access to higher loan amounts at lower interest rates, helping them scale without relying on expensive credit. 

But is it the right solution for your needs? Understanding how secured loans work, the various types available, and the application process can help you make the most informed decision. 

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What Are Secured Loans?

Secured loans are a form of borrowing where the borrower pledges an asset like property, machinery, or receivables as collateral. This collateral reduces the lender's risk, allowing businesses to access higher loan amounts, lower interest rates, and more flexible repayment terms than with unsecured loans. If the borrower fails to repay, the lender can seize the collateral to recover the loan.

How Does Secured Loans Work?

Lenders approve secured loans based on the value of the collateral provided. If the borrower fails to repay, the lender can take ownership of the asset to recover losses. This makes secured loans an effective financing tool for businesses.

Also read: Business Loan Collateral: Types, Eligibility Criteria, and Requirements

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Types of Secured Loans

• Secured Term Loan – A lump sum loan with a fixed repayment schedule backed by assets like property or receivables. These types of loans are ideal for expansion or major investments.
• Venture Debt – A financing option for startups and high-growth businesses secured against company assets or intellectual property. It complements equity funding without dilution.
• Vendor Financing – Suppliers offer credit to businesses by securing payments against future sales or inventory, helping manage cash flow without immediate capital outflow.
• Equipment Finance – Businesses obtain machinery or equipment with the asset itself serving as collateral, ensuring essential purchases without straining cash reserves.
• Acquisition Financing – A loan to buy another business, secured by the target company's assets or future cash flows, allowing strategic expansion without upfront capital.

Also read: Difference Between Secured and Unsecured Business Loans

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Benefits of Secured Loans 

• Lower Interest Rates: Secured loans have lower interest rates due to the collateral backing the loan.
• Higher Loan Amount: You can borrow a larger amount based on the value of your collateral.
• Flexible Repayment Terms: Secured loans offer flexible repayment options, including adjustable loan tenure, monthly payments, and interest rates.
• Extended CFO Support – Access expert capital advisory to evaluate and secure the best loan offers tailored to your business.
• Boost Your CIBIL Score – Successfully repaying a secured loan improves your creditworthiness, making future financing easier.

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How to Apply for a Secured Loan?

Secured loans require businesses to meet specific eligibility criteria, submit essential documents, and follow a structured application process.

Eligibility Criteria for Secured Loans

1. Revenue: The business must generate at least ₹40 Crore in annual revenue.
2. Vintage: The business must have been operational for at least one year.
3. Runway: The business should have a minimum of six months of operational runway (i.e., sufficient funds to continue operations for at least six months).
4. Age: The applicant must be at least 18 years old.
5. Assets Pledged: The assets pledged for the loan must have a value equal to or greater than the loan amount requested.

Required Documents:

1. Business Registration Details: This includes the business's Corporate Identification Number (CIN), Permanent Account Number (PAN), and Goods and Services Tax Identification Number (GSTIN).
2. Financial Records:
   
   • GST filings.
   • Last 24 months of bank statements.
   • Management Information System (MIS) reports.
   • Audited financial statements.

Application Process

• Sign Up– Register on Recur Club. A dedicated capital expert will guide you through the various loan structures available.
• Submit Financial Details – Provide bank statements, GST filings, compliance data, and financial reports. You can sync your existing financial software with the platform to make it easier.
• Receive & Compare Loan Offers – Once your application is approved, you’ll have access to a range of loan options. You can compare their terms in detail with your capital expert.

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Conclusion

Secured loans provide businesses with a strategic way to access significant capital, offering favorable interest rates and repayment terms by using assets as collateral. This financing option enables companies to fund growth, manage cash flow, among other things.

Recur Club has facilitated over ₹1,000 Crores in capital through 125+ lenders, delivering customized debt solutions for a variety of sectors, including SaaS, subscription-based businesses, D2C brands, healthcare providers, and professional services firms. Moreover, with expert support from Recur Club’s capital consultants, you can refine your financial strategy.

Find the secured loan option that suits your business today.

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