A Handy Guide about Secured Business Loans- Fees, Documentation & Benefits

Last Modified: 31-March-2022

Secured Business Loan

Owners of proprietorships, partnerships and LLCs (limited liability companies) can avail of a secure business loan to meet their business requirements. They also must fulfil the eligibility criteria set by the lending institution and get the asset verified that they wish to pledge so that the process can be initiated. 

Get a Secured Business Loan with Muthoot Capital:

To get approval for a collateral loan or secured business loan, you need to pledge a business asset such as property, land, equipment etc in the form of security against payment defaulting. A secured loan has a lower rate of interest and a longer loan tenure compared to unsecured loans. Muthoot Capital offers secured loans for small businesses to enterprises that have a low asset base and short track record. These enterprises typically cannot get financial aid from a commercial bank. 

Features and Benefits of Secured Business Loans:

A secured business loan is the best way to get business capital to expand or scale up your business. 

  • Assets as security: If your business isn’t eligible for unsecured loans, but has to its name assets such as property, machinery, equipment, land or commercial property, Muthoot Capital offers secured loans against these business assets.
  • Unlock asset value: Taking a secured business loan unlocks your business asset’s value. 
  • Lower rates of interest: Secured loans carry a lower rate of interest as compared to unsecured loans. 

Eligibility Criteria for a Secured Loan for a Small Business:

A secured loan is available to firms that have valid credentials, adequate financial performance, and documentation to prove them both. Muthoot Capital has laid down a few criteria that applicants must meet to be eligible for a secured business loan

  • Type of applicants: NBFC, NBFC-MFI, HFC Manufacturing units Trading units Service units
  • Asset Classes: Receivables with respect to microfinance, housing finance, vehicle finance, agricultural finance, and small business finance in the case of NBFCs; receivables and stock with respect to the manufacturing sector; receivables and stock in trade with respect to the trading sector; receivables and stock in trade with respect to the service sector.
  • Financial performance: The business must have profitable operations for at least the period immediately preceding two financial years, as evidenced by audited financial statements. The business must not have any accumulated loss. A minimum Capital Adequacy Ratio of 17% as on the balance sheet dated immediately preceding two financial years in respect of NBFCs.
  • Strong investor or promoter background.
  • Sound and credible board of directors or promoters.

Documents Required to Get a Secured Business Loan:

  • Sanction Letter from MCSL that the borrower must accept.
  • A facility agreement.
  • The Deed of Hypothecation.
  • Demand Promissory Note in favour of MCSL executed by the borrower.
  • Security cheques (for NACH mode of repayment) from the borrower (you) that covers the payment of the entire loan amount according to the repayment schedule, along with applicable interest.
  • If the loan is secured by any other asset, you need documentation giving a charge over the asset so provided as collateral security in favour of MCSL as a security for the facility as well as a search report stating that the asset is free from any previous commitments.
  • Power of Attorney given to MCSL.
  • A guarantee agreement is signed by the guarantors.

In addition to all these documents, you need any other form of documentation that you as the borrower agree to while finalizing the loan and its terms.

Fees and Charges of a Secured Business Loan:

Over and above the interest rate charged on the loan, you must also pay a few charges as applicable when you are applying for the loan. These are

  • A one-time nominal processing fee.
  • Miscellaneous charges like registration certificate collection, documentation, amortization charges, stamp duty, etc. 
  • Nominal charges for loan prepayment are applicable in some situations.

Types of Secured Business Loans:

1. Loan secured by collateral:

There are various types of secured loans that businesses can avail of by pledging business assets as collateral. A loan taken against a mortgaged property is arguably the most common type of secured loan. A mortgaged property is high in value and thus makes you eligible for the longest loan tenure possible.

2. Loan secured by personal guarantee:

If a business doesn’t have assets or security that you can provide as collateral, Muthoot Capital also offers small business loans that are secured against a personal guarantee as a pledge. The land, gold, or property of a partner or proprietor can secure the loan. 

Get in touch with our team to start your loan application process today.

About Author
Muthoot Capital Services Limited is one of India's most progressive financial companies. It is the part of Muthoot Pappachan Group which carries a legacy & trust of more than 133 years.
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