What Are the Different Types of Secured Business Loans?

A secured business loan in India might be a great option to obtain the funding required to advance a company. However, many business owners are unsure about the right type of business loan for their requirements. Secured loans can be a fantastic business financing tool since they offer several advantages over other loan options.

For example, borrowers usually get lower interest rates than unsecured loans because lenders value collateral in securing their investments. It means lenders offer better terms to customers who provide security. Several benefits are associated with using collateral, such as reduced risk and faster approval time. When selecting a type of secured business loan in India, choose the one that best suits the company’s specific needs. Ensure to choose the right loan for your business before signing anything.

Why apply for a secured business loan?

A business loan backed by collateral is known as a secured loan.  

Although it is obvious that a business-secured loan benefits the lender, it may also be beneficial to the borrower. For instance, obtaining a secured loan for business owners wanting to rebuild their credit will be simpler. Other benefits include lower interest rates, longer payback terms, and the potential to develop a connection with the lender. All of these benefits may be useful in the short or long term.

What kinds of secured business loans are there?

There are numerous types of business-secured loans; a few of them are:

1. Secured term loan

Secured term loans have collateral backing them. These include loans against real estate (loan against property), equipment, inventory, vehicles, accounts receivable, and some personal property. Anything provided as security for loan repayment is regarded as collateral. It includes assets owned by the lender, such as a car, home, land, building, farm, etc. The lender has the right to sell the asset if the borrower does not pay back the debt in full. It helps ensure lenders get repaid if borrowers do not pay back their debts. These loans are usually for longer periods.

2. Letter of credit

The letter of credit, sometimes referred to as a credit letter, is simply a sort of assurance that the financial institution provides to a seller from whom a person has bought something that they will get paid on schedule and in full. If the purchaser fails to pay the seller, the financial institution will step in and pay the seller’s entire payment on the buyer’s behalf. This letter represents a formal communication from the financial institution to the seller.

3. Equipment Finance

Equipment financing is a financial tool that gives business owners money to buy or improve equipment. One can choose equipment financing whether their business is a small to medium-sized one or a huge one. Financial institutions have different lending policies regarding the loan’s principal amount, interest rate, payback period, and other terms. When one buys machinery or equipment through equipment finance, the asset is instantly regarded as collateral for the loan.

4. Invoice discounting  

A firm sells an invoice to a third party during invoice discounting, typically referred to as a finance company. The finance firm assumes responsibility for obtaining the full payment from the buyer. At the same time, the business receives a portion of the amount billed to the customer immediately after selling an invoice. Businesses may improve their cash flow and working capital cycle by selling their invoices and gaining rapid access to cash. Invoice discounting is a popular financing strategy for companies who do not want to or cannot wait for their customers to pay their invoices.

5. Loan against securities

Businesses can also opt for loans against securities such as fixed deposits, gold, shares, mutual funds, etc., to finance their business needs. However, the investments in these assets cannot be used until the loan is repaid.


Business-secured loans can help those in financial trouble, but they must only be utilised judiciously and never taken for granted. Before opting for a secured business loan in India, there are several things to consider. First, one will need to have collateral to put up for the loan. Additionally, remember that a lender can seize the asset if the borrower defaults. With Muthoot Capital, a reliable and trustworthy secured business loan provider, entrepreneurs and enterprises can avail of loans against property, shares, mutual funds, gold, etc., at competitive interest rates, with a hassle-free process and flexible repayment options.