Secured loans use property or other assets as security for a loan, and if the borrower is unable to repay the loan, the assets used for security will be at risk.
Naturally, property is the main form of security that can be used to obtain a mortgage or short-term bridging loan. Businesses can borrow up to £25m for a bridging loan, while governments can lend considerably more than this. The German government recently provided a bridging loan of €150m (£137.5m) to struggling airline Air Berlin.
On a much smaller scale, loans up to £50,000 can be secured using the value in a vehicle. Businesses sometimes have low cash flow, but may be owed a lot of money in unpaid invoices. Lenders will provide money based on the value of outstanding invoices, meaning the loan can be repaid with interest after the invoices have been paid.
Some bridging finance lenders will consider a stake or equity in a company as a form of security. It is even possible to provide security in the form of valuable jewelry, art or antiques.
When taking out a bridging loan, the borrower needs to be certain how and when the loan can be repaid, otherwise the asset used for security is at risk. If the security is business premises or the borrower’s residence, this can have serious consequences.
A broker can provide advice on secured loans and will assess the ability of the borrower to repay the loan so that their secured assets are safe.